Moody's sparks corporate rush for $ bonds

Banks and companies will line up to raise long-term bonds from overseas markets after Moody’s upgraded the sovereign rating for India to Baa2.

However, the full benefits would be enjoyed by the banks and companies only after the other two rating agencies, Fitch and S&P, upgrade the sovereign rating for India.

Both Indian companies and banks will be able to raise funds at cheaper rates overseas, particularly bonds. Banks and NBFCs, including State Bank of India, HDFC Bank and HDFC Ltd, and companies including Reliance Industries Ltd (RIL), Grasim, REC and Sail share the country’s ratings, which is now upgraded to Baa2, two notches above the junk status.

A senior SBI official said, “There will be a number of companies waiting to raise bonds from the market as the cost comes down with the rating upgrade."

But bankers say not many companies are raising money overseas as capital expenditure in India is also not growing. Most fundraising is generally for repayments for earlier bond issuances.

According to bankers, RIL is already exploring the market to raise about $800 million to $1 billion through a long-term bond sale making it one of the first companies to explore the market hoping for fine rates riding on the rating upgrade.

In a release, Moody's Investors Service said it has assigned a Baa2 rating to the proposed dollar-denominated senior unsecured bonds of RIL. The outlook on the rating is stable.

"RIL's Baa2 ratings reflects the company's strong ability to generate operating cash flows, with annual Ebitda exceeding $10 billion from its large-scale integrated refining and petrochemical operations — which generate strong margins — and the company's nascent but growing digital services business," said Vikas Halan, Moody's vice-president and senior credit officer.

Ashutosh Khajuria, executive director, Federal Bank, said, “Top companies and banks share the country’s rating so it will be certainly cheaper for them to raise bonds in the overseas markets. Since the country’s rating was Baa- companies were unable to raise money at fine rates despite strong balance sheets as the country’s rating is also taken into account for the pricing. Companies like RIL SBI and HDFC Bank will all be benefited as they will share the country’s rating now which is two notches above the junk status.”

Reliance Securities said in a report, "Higher sovereign rating by international rating agency always ensures low cost of foreign borrowings as better rating helps in boosting confidence among the foreign lenders. Though foreign borrowings (external commercial borrowings) have always been cheaper for domestic companies, a ratings upgrade will result in further cut in lending rates. There are a number of debt-laden companies operating in India (mainly due to capital intensive business model), which have already drawn foreign loans in their books. We expect these companies would be the major beneficiaries, as they can get these loans refinanced at lower rates."

STATUS CHANGE

• Both Indian companies and banks will be able to raise funds at cheaper rates overseas, particularly bonds
   
• But bankers say not many companies are raising money overseas as capital expenditure in India is also not growing
   
• Most fundraising is generally for repayments for earlier bond issuances