Indian dollar bond rush seen unabated even as returns drop

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Indian issuers look set to keep tapping the dollar bond market in the fourth quarter even after record issuance so far this year, as US currency borrowing costs remain attractive and strains persist in rupee debt markets.

Investors have lapped up debt sales in 2019 from Indian issuers, which still account for less than 7% of offerings in the Asia ex-Japan market and offer diversification from Chinese deals. After significant tightening in India dollar spreads in 2019, however, investors in the fourth quarter can probably expect returns mainly from holding the notes and earning interest, according to Bharat Shettigar, head of Asia ex-China corporate credit research at Standard Chartered Bank.

"The pipeline is healthy and there will be continued issuance in October and November as all in yields in dollar are very attractive for issuers and domestic credit conditions remain tight," Shettigar said. In the dollar market "spreads for Indian companies tightened because of investor demand, especially for high-yield names," he said.

Dwindling Profits

Tough borrowing conditions back home due to a deepening shadow bank crisis has pushed issuers overseas, and dollar bond sales are running to an all-time high of about $18 billion so far in 2019. While most Indian US currency credit spreads have tightened this year, the recent slump in the bond prices of financier Indiabulls Housing Finance Ltd. and Yes Bank Ltd. highlight risks of investing in some Indian names tied to the domestic credit squeeze.

Dollar bonds issued by Indian companies posted their lowest return this year in September, but they still managed to avoid losses seen in Chinese and Indonesian notes in that period.

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