Indian banks’ $105b debt wall whets bond appetite
mumbai/singapore — As Indian lenders prepare to refinance the biggest debt maturity for any three straight years in a decade, investors are lining up.
The financial sector, faced with almost ₹7 trillion ($105 billion) of notes coming due over three years, will drive rupee-denominated issuance, helped by lower bond funding costs and rising demand, says SBI Funds Management’s Rajeev Radhakrishnan. Issuance hit a record for the second straight year to ₹5.1 trillion in 2016 and Edelweiss Asset Management predicts that level will be outpaced this year, enough to whet mutual funds’ appetite for quality-rated corporate bonds.
“There are no pricing pressures seen for these companies to refinance in the bond market as the supply is in line with the demand,” said Radhakrishnan, head of fixed income at SBI Funds, India’s fifthbiggest money manager with ₹1.3 trillion of assets as of September 30. “Asset managers are getting bigger, hence the demand too will be stronger. We will continue to invest in the sector to the maximum limit allowed.”
Lenders, the dominant borrower in India’s bond market since at least 2000, have to repay an unprecedented ₹1.9 trillion of notes this year, data compiled Bloomberg show. The liability will swell to ₹2.5 trillion each in 2018 and 2019, the largest bond maturity of any three consecutive years since 2007.
The share from the financial sector in rupee bond issuance is increasing as banks have been slow in cutting lending rates, said Radhakrishnan. The average yield on top-rated three-year corporate notes is at 7.39 per cent, 76 basis points lower than a similar maturing loan at the nation’s largest lender State Bank of India.
“Bond market participants are not perturbed by the maturity amount at the moment,” said Dhawal Dalal, Mumbai-based chief executive officer for fixed income at Edelweiss Asset, who estimates that rupee bond sales could hit as high as ₹5.5 trillion in 2017. “We will look to invest in the sector at the opportune time. There is enough appetite.” —