Bonds: Backlog builds as India reform hopes wane

Just as Indian companies are lining up to come to the international bond market, sentiment seems to be turning against them.

Several US-dollar fundraisings scheduled for this year may now be delayed, according to bankers working on the deals.

Bankers are estimating a pipeline of about USD1.0bn from India, adding to the USD7.5bn that issuers in the country - mostly financial institutions - had raised through dollar bonds so far this year.

However, just as companies line up with their deals, sentiment towards India is once again turning gloomy as investors worry that the reforms will be further delayed.

"Sentiment around India in the bond market has changed in the past few weeks due to the drop in the rupee and the delay in implementing reforms.

Spreads for Indian corporates have widened and, as they may not get the levels they are looking for, most deals could only come through next year," said a Hong Kong-based credit analyst.

India's corporate sector had only recently begun eyeing dollar bonds and at least five live mandates from the subcontinent were at different stages of completion last week.

Their late arrival in a record year for dollar issuance came after the government slashed withholding tax and announced a series of economic reforms in September, spurring demand for Indian exposure.

That period of optimism, however, appears to have been short-lived.

The spread on Reliance Industries' 2.02.0 bonds has widened 32bp in the last month, while NTPC's 1.0-year bonds are also around 3.0bp wider at 29.0bp.

After recovering to as much as 51.32 against the US dollar in early October, the Indian rupee fell to 55.89 last Monday.

This was the result of concerns over the current-account deficit, after data on October 12 showed India's trade deficit worsened to an all-time high of USD21bn.

There are also growing concerns about the government's ability to push through bold reforms announced in September.

... contd.

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