Search for cheaper, quicker money driving Indian companies to international financial markets, says new Economist Intelligence Unit report
As a result, India over the past five years has led other Asian emerging markets in growth of private inflows from equity and debt issued, and loans raised overseas by domestic companies. Overseas borrowings and equity issues together totalled US$16bn in fiscal 2005/06, a hefty 75% increase over 2004/05.
The Economist Intelligence Unit briefing paper, which was sponsored by Bank of America, notes that Indian companies traditionally use debt instruments such as syndicated loans and bonds. But in September 2006 Reliance Industries, one of India’s largest companies, became the first Indian issuer to enter the US private debt placement market, where investors selectively consider only “investment grade” companies, based on high credit ratings.
The following are key findings of the paper, which is based on a series of interviews with financial experts, government officials and companies involved or interested in the domestic and international financial markets:
· Indian companies seeking overseas funds belong to a range of industries, including biotechnology, hospitality and textiles. Capital-intensive sectors such as automotive and infrastructure are also active abroad. For example, Tata Power, India's largest private-sector power producer, raised US$200m in February 2005 with a five-year foreign currency convertible bond (FCCB). State-owned companies directly or indirectly involved in infrastructure have also raised large amounts of external commercial borrowings (ECBs).
· Overseas equity issues via ADRs/GDRs have surged. Since India’s economic liberalisation in the early 1990s, overseas equity issues via American depositary receipts (ADRs) and global depositary receipts (GDRs) have soared. In 2005/06, these increased fourfold over the previous fiscal year. As a result, their share of total funds raised via public issues, private placement and overseas equity issues climbed from 4% to 10% over the period. If private placements are not considered, ADR/GDR issues account for a much greater proportion of equity funds raised·28% of the total between April 2005 and February 2006.
· Indian banks are now permitted to issue innovative instruments in foreign currency to raise funds for capital-adequacy needs. Since January 2006 domestic banks can issue perpetual debt and debt capital instruments in foreign currency to raise funds for capital-adequacy purposes. This increase in bank capital is needed to meet Basel II requirements as well as to support growth in balance sheets. Further liberalisation in July 2006 dispensed with the need to obtain prior approval from the central bank for such issues.
· Indian companies have begun to tolerate exchange-rate risk. This has encouraged the use of ECBs, which expose issuers to exchange-rate risk since repayment of the principal and interest is in foreign currency. In the case of FCCBs, the option to convert enables pricing at relatively low yields. Moreover, the documentation and regulatory approval processes for overseas financing are often quicker and easier than those to raise funds at home. Indian companies can also increase their “visibility” abroad, a factor that is gaining in importance as they do more business outside the country.
· India’s sovereign credit rating is a constraint to overseas funds. India’s sovereign credit rating affects international financing opportunities for many local companies. Standard & Poor’s rates India’s foreign-currency debt as below “investment grade”, while Fitch raised India’s rating to “investment grade” in August 2006. Some Indian companies, thanks to their large offshore operations, have been rated higher than the sovereign credit rating, but this has been difficult to achieve for domestically oriented Indian companies, no matter how well-run.
“The report affirms our view that India’s corporates have reached a new level of maturity and integration with global financial markets, and are ready for more sophisticated fund-raising alternatives,” says Vishwavir Ahuja, Bank of America’s India Country Executive Officer:
Corporate India will seek more funds overseas through debt and equity. "Indian companies are growing in size and ambition, and will continue to look at foreign-currency resources to fuel growth, both for expansion and acquisition," says Bina Jang, the project manager of the report. It is likely that offshore funding will become more prevalent as India's savings-investment gap widens in 2007, and the demand for investment funds continues to exceed domestic savings into the foreseeable future.
Funding corporate India: opportunities in international financial markets is available free-of-charge at http://www.eiu.com/FundingCorporateIndia
About the research
The report is based on numerous interviews with financial experts, government officials and companies involved or interested in the domestic and international financial markets.. The findings and views expressed are those of the Economist Intelligence Unit alone.
About the Economist Intelligence Unit
The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group, which publishes The Economist newspaper.
The Economist Intelligence Unit provides geopolitical, economic and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With over 300 full-time professionals in 40 offices around the world, supported by a global network of more than 700 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets.
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2021년 1월 7일 16:29
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