Offshore investors losing patience with growth story

Mumbai, June 19: Already spooked by a global bond rout, foreign investors are wondering if their expectations for India’s recovery were just too bullish.

The average yield on dollar notes issued by Indian companies climbed 15 basis points this month to as much as 4.69%, the highest in a year, as the government reported a 20% slump in exports, a surprise current-account deficit and a pick-up in inflation. Standard Chartered and Fisch Asset Management predict this year’s dollar-bond issuance will slide at least 15% from last year’s record.

Offshore investors are losing patience as Prime Minister Narendra Modi grapples with stalled projects and souring bank loans while struggling with a Bill to ease land ownership rules for industry. Higher borrowing costs are ill-timed amid falling profits for listed companies and the slowest syndicated loans market in seven years.

“The Modi gover nment actions haven’t yet resulted in stronger economic growth and a pick-up in the capex cycle, as reform measures will take time to take effect,” said Shilpa Singhal, senior credit analyst at NN Investment Partners, formerly known as ING Investment Management. “Investors may be disappointed that the recovery is not as fast as expected.”

The government is struggling to get the land reform Bill — making it easier for companies to acquire land for mills — passed in the Rajya Sabha. The government also has a backlog of R13.5 lakh crore ($212 billion) of stalled projects amid plans to spend R1 lakh crore on infrastructure this year, minister of state for finance Jayant Sinha said earlier this month.

Indian companies sold an unprecedented $15.9 billion of dollar bonds in 2014. While sales are still ahead of a year earlier, at $7.1 billion compared with $6.9 billion, that growth may be derailed as global buyers retreat and issuers seek alternatives to higher offshore costs.

Power Grid Corp of India, a public sector electricity distributor, is sticking with local markets for funding needs as offshore borrowing costs aren’t attractive, finance director RT Agarwal said. That’s even as the company, whose previous dollar sale was a $500-million offering in 2013, plans to lift borrowings this fiscal year by 8%.

“Costs for us have increased in the recent past and, therefore, there is insignificant savings in borrowing from abroad,” Agarwal said. “We are going to rely on domestic markets as we would be able to manage it better.”

Alternatives are on offer. The RBI earlier this month sought to boost inter national demand for rupee debt by issuing offshore sale guidelines for companies. International Finance Corp, a World Bank funding arm, was the first to offer such notes in 2013 and Indian Railway Finance Corp is exploring a sale.

RBI governor Raghuram Rajan has warned that borrowing in dollars was like playing “Russian roulette.” This period of slow global growth is “particularly dangerous” as countries will attempt to divert growth from others, he said on June 11 in Bangladesh.

Among other things, the government is struggling to get the land reform Bill — making it easier for companies to acquire land for mills — passed in the Rajya Sabha