PSU hotties queue up to raise $5b in ECBs

Tags: Companies

Foreign loans 500 bps cheaper than local debt

PSU hotties queue up to raise $5b in ECBs
The external commercial borrowing (ECB) pipeline is bulging with public sector heavyweights queuing up to raise $5 billion through bond sales in the United States and Europe. Strong economic fundamentals at home are expected to help these companies raise foreign currency loans at a fine pricing.

Interest rates in the domestic market are headed north after the RBI kept credit costly for domestic banks in the money policy unveiled earlier this week. For raising cost-effective debt, companies are exploring cheaper options in offshore markets like the US, Europe and Asia. "Indian companies can secure credit at least 400 to 500 basis points cheaper than the onshore markets even after hedging," according to bankers arranging deals for these companies.

Oil India will be among the first Indian companies to debut in the overseas credit markets with a $1 billion bond issue. According to bankers associated with the deal, the company will hold investor meets in Europe and Asia. Citigroup, Deutsche Bank, HSBC, RBS and Standard Chartered are expected to manage Oil India issue.

ONGC Videsh too will launch a $1 billion bond issue with Citi, Deutsche Bank and Standard Chartered as issue managers. OVL has to pre-pay a bridge loan of $2.2 billion it raised earlier this year for the Mozambique oil blocks.

Other state-owned enterprises like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) have requested proposals from banks to raise bonds. PFC is looking at raising $500 million to $750 million, while REC is looking at raising $1 billion.Bankers suggest that IIFCL is also looking to raise close to $1.5 billion through bond, but the management insists that it is yet to take a call on fund raising plans.

Confirming the bond issue, an Oil India official said, "The company is planning to raise $1 billion through bond sale to repay the bridge loan for buying Videocon's 10 per cent stake. The firm is undertaking road shows in the UK, the US and Singapore. The average rate of interest for 5-year tenure bond is expected to be around 5 per cent. The bridge loan raised earlier was at 1.1 per cent."

Officials at ONGC Videsh too confirmed that plans are afoot to launch a bond sale to refinance the loans contracted for the oil and gas block in Mozambique.

A senior OVL official told Financial Chronicle, "OVL had raised around $2.2 billion as bridge loan earlier this year. We have one year to repay that. We are planning to refinance it through bond issuance and bilateral deals. The bridge loans were raised at 100 basis points over the Libor (London interbank offered rate)."

Santosh Nayyar, chairman and managing director of IIFCL, said, "We are examining the offshore markets, but are yet to decide on the size of the bond offering. Various banks are making presentations to us, but we are yet to finalise our requirements and the timing of the issue."

The domestic corporate market remains dull with the spike in yields following the restriction on foreign institutional investors from investing in government debt of less than one-year by the Reserve Bank of India (RBI). Though RBI action is aimed at targeting hot money that may be flowing into the country in the runup to the general election, yields in the government debt market are rising.

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