Risk sppetite for high-yield Indian bonds could sustain till Q1

Timing, size and pricing with a clear strategy are essential for any non-banking finance company to raise funds overseas as the business faces many headwinds from banks with lower cost of funds, says Amrish Baliga, managing director at Deutsche Bank India. The appetite for high-yield Indian papers has gone up for global investors, Baliga told Saikat Das in an interview. Edited excerpts:What is your outlook for offshore loans and bonds in 2020?I am pretty confident going into 2020 on the back of a strong 2019. Our projected loan and bond pipeline looks strong. Markets continue to evolve. Heightened volatility levels are the new normal and our advice to clients has always been: Stay prepared. We will advise caution in the face of unforeseen volatility, which is more a function of how international markets play out to reams of relevant information.Are lower-rated NBFCs able to access overseas market amid risk aversion?A significant number of NBFCs are evaluating offshore liquidity taps. Roadshows are planned and investor education ongoing. Timing, sizing and pricing with a clear elucidation on business mix and growth may make a difference.What are global investor reactions to Indian high-yield paper?We saw a strong risk-on approach to Indian paper across sectors in 2019. Deutsche Bank brought landmark offerings in terms of novel structures and issuers from sectors that were relatively unknown to international investors. The response was overwhelming, depicting a risk-on mindset. The risk appetite for high-yield Indian paper has improved, subject, of course, to appropriate credit matrix.That would play out at least into the first quarter of 2020. You could see phases of caution where investors will wait and watch. Local companies need to tap the overseas market opportunistically.How do you compare the cost of borrowing between global and local markets?Evaluating fundraising via debt and equity is a function of access to liquidity; pricing of the instrument and pricing for the hedge (currency cover). Business mix also is a key factor. Whether entities have dollar revenues that act as a natural hedge goes into an evaluation. So, it is not just the cost of borrowing locally. Access to and availability of liquidity pools offshore will be factored in. There are various criteria that go into play when issuers evaluate a liquidity pick-up.How does the global rate trajectory look like?That is an interesting question. Even as economies the world over soften , the ability or tools for central banks appear limited. We have negative rates in many developed parts of the world, but that doesn’t mean that investors in those jurisdictions will be pro-high-yield without a necessary track record and rationale.The share of negative yields may fall… But any improvements to pockets of global growth augur well for emerging markets with more inflows.The DB house view is that the repo rate in India will be cut by 65 bps to 4.5% over the course of 2020.Will the Essar judgement bring any change in India’s distressed asset market?Absolutely. And that’s very beneficial for Indian markets as we will see novel and deeper pools of liquidity, alternative sources of capital and expertise being brought to bear.This could also mean a quicker pace in turnaround and distribution of such risk to many participants. It’s a fantastic outcome. As you are aware, we have significant presence in these type of funding/s and will look to partner newer entrants as the markets evolve.What is the way out for long-term funding in the Indian infrastructure sector? Banks now shy away from long-term loans.Indian issuers are moving more from momentum to project-related grading and issuances. A landmark issue that we helped bring to market was Adani Solar restrictive group project funding. The tenor and price was a first on many levels. What that did was to remove project risk from the bank market and introduce it to bond market.The Adani Group is a sophisticated issuer of such type of risk and our ability to work with them on landmark trade/s was a different experience, where project fundamentals were evaluated compared to plain momentum-driven issuance.For DB, how has the year 2019 been in arranging issues?The year (2019) has been a landmark year for a lot of our businesses. The depth and variety of our financing platforms were all put into play for our various clients and issuers.Whether it be our strong debt capital market team or our best-in-class financing and fixed income funding or our diverse equity-linked financing… there were many firsts and that’s largely due to the faith that our clients and partners reposed in us.

from Economic Times https://ift.tt/39ykZmD