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Crisis doesn’t stop some India lenders getting global loans

Highly-rated firms have sought loans in the global market in recent months.

Bloomberg|
Nov 14, 2019, 10.24 AM IST
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A dollar loan by Housing Development Finance Corp. in August shows how it often makes sense for financiers to borrow overseas rather than at home.
By Anurag Joshi

While most of India’s shadow lenders remain caught in a prolonged cash crunch at home, some of the highest-quality financiers are finding that yield-hungry investors in the global loan market are eager to extend credit.

That’s helped reduce average margins on overseas loan deals for non-state Indian shadow lenders to a record low, according to data compiled by Bloomberg. Highly-rated firms including Tata Capital Housing Finance Ltd., L&T Finance Ltd. and Fullerton India Credit Co. have sought loans in the global market in recent months.

The top-rated non-banking financing companies are able to get loans in the domestic market as well, but they are finding that borrowing costs are often lower overseas. Investors, especially those from Japan and Taiwan, are happy to lend to them. The ease with which the firms are able to raise funds contrasts with their lower-rated peers, who are struggling to get financing due to investor concerns about bad debt and defaults in the sector.

“International lenders are selectively looking at this sector, based on international ratings and the business model of the borrower,” said Manmohan Singh, head of banking at the Indian unit of Bank of Nova Scotia. “Strong NBFCs will continue to have access to international capital at competitive rates.”

A dollar loan by Housing Development Finance Corp. in August shows how it often makes sense for financiers to borrow overseas rather than at home.

When hedging costs against exchange-rate moves are included, HDFC needs to pay about 6.7% for its three-year dollar loan. That’s lower than the 7.28% coupon on similar-maturity rupee bonds it issued in September.

More deals are on their way. Bajaj Finance Ltd., the nation’s most valuable consumer financier, is marketing a $575 million-equivalent loan, increasing the pipeline to more than $1.5 billion for domestic shadow lenders.

That comes as average margins for non-state Indian shadow lenders have dropped to a record 116 basis points over the London interbank offered rate for overseas loan deals signed so far in 2019, compared with 135 for all of last year, according to data compiled by Bloomberg.
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