Non-banking financial companies have raised more than $2 billion of overseas bonds.Bloomberg|Jun 04, 2019, 10.24 AM ISTBCCLUjjivan Small Finance Bank is a subsidiary of the listed entity Ujjivan Financial Services.By Anurag Joshi and Denise WeeIndias shadow banks are being forced to go overseas more for money as local lenders balk at extending funds, flagging strains in a key industry for an economy thats already sputtering.The countrys non-banking financial companies have raised more than $2 billion of overseas bonds and loans in 2019, a record compared with the same period in previous years, according to data compiled by Bloomberg.
The lifeline is welcome, even as it underscores a scramble after a string of defaults by peer ILFS Group last year made investors wary.The development comes at a trying time for Indias shadow banks, which lend to everyone from poor entrepreneurs getting micro loans for food delivery businesses to property tycoons looking to roll over debt.
The economy expanded at its slowest pace in several quarters in the first three months of the year.What Observers Are SayingThere is obviously some risk premium being attached to the sector by international lenders, compared to funding rates for similarly-rated corporates, according to Chetan Joshi, head of debt capital markets at the Indian unit of HSBC Holdings Plc.
The USD loan market has shown an ability to support Indian NBFC and housing finance company borrowers.
On a fully hedged basis, the borrowing costs for NBFCs would be 25-50 basis points higher than the onshore rates, according to Ajay Marwaha, London-based head of investment advisory at Sun Global Investments.For investment-grade companies from India, dollar bond issuance will mainly come from non-bank financial institutions, as their funding conditions onshore have been very tight in the wake of the ILFS situation, according to Annisa Lee, head of Asia ex-Japan flow credit analysis at Nomura International (HK) Ltd.
Theres still not a lot of supply coming from India, so if issuers are willing to pay up, they will be able to print new paper.
In terms of the amount of premium they would have to pay, its name by name, depending on which sector they focus on, Lee said.The ability for most NBFCs to go out and raise money in any meaningful way through domestic capital markets is really quite restricted says Arjun Kapur, head of corporate finance, Sun Global Investments.
Most non bank financial institutions would be looking to raise funding from international capital markets, he added.SBI has a plan ready to cash in on India's shadow bank crisisRBI plans liquidity buffer at shadow banks to aid stressed sectorShadow banks feel sting as mutual funds cut exposureIndia's shadow banks dread builder bankruptciesChina's clampdown on shadow banking has pushed borrowers into the online undergrowthCommenting feature is disabled in your country/region.