IFR International - 03.11.2018

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Borrowers flock offshore

„ INDIA Oil companies ramp up overseas borrowings after rule change

India’s offshore loan market is enjoying a flurry of

activity, with up to US$3bn of deals in the works

after the central bank relaxed rules on overseas

borrowings for companies from the oil and gas

sector.

State-owned oil and gas companies account

for around half of the new supply with BHARAT

PETROLEUM, affiliate BHARAT OMAN REFINERIES,

HINDUSTAN PETROLEUM and INDIAN OIL eyeing new

financings.

BPCL is seeking a US$300m five-year term loan

with a greenshoe of the same size, while Bharat

Oman Refineries is eyeing a US$125m three-year

refinancing. HPCL and IOC have sent requests

for proposals for a US$500m five-year loan and

a US$300m three-year deal, respectively. The

deadline for all four RFPs is imminent.

The new loans come after the Reserve Bank

of India last month revised guidelines on so-

called external commercial borrowings, partly to

counter the decline of the rupee, which has lost

15% year to date and traded at an all-time low of

Rs74.33 to the US dollar in October.

“These are all in response to the RBI’s change

in borrowing guidelines for oil marketing

companies,” said a Singapore-based loans banker.

“The changes are part of the central bank’s

initiatives to protect the rupee – by encouraging

these companies to borrow offshore.”

On October 3, the RBI allowed the state-

owned oil marketing companies to raise up to

US$10bn combined through ECBs for working

capital purposes with minimum average

maturities of three to five years without the need

for regulatory approval. The RBI has also waived

the individual limit of US$750m-equivalent

per financial year and the mandatory hedging

requirements for these borrowings.

Indian state-owned oil and gas companies

raised a total of US$4.12bn last year, a 43.8%

decline from US$7.28bn in 2016.

BULGING PIPELINE

Apart from oil and gas sector companies, other

frequent borrowers are also adding to the deal flow.

State-owned power producers NTPC and

POWER GRID CORP OF INDIA are tapping the

Samurai loan market in Japan. NTPC has sent

an RFP for a US$150m-equivalent 10-year yen-

denominated loan – the borrower’s second such

loan since closing a ¥39.42bn 10-year Samurai

facility in April. Power Grid is seeking US$200m-

equivalent through a 12-year debut offshore loan.

STATE BANK OF INDIA, the country’s largest

lender, has mandated seven banks on a

US$500m five-year loan, its fourth borrowing

of the year, while TATA MOTORS has picked nine

banks for a US$1bn financing, nine months after

completing a £640m (US$850m) loan.

These facilities will give a much-needed boost

to Indian loan volumes, which slumped 16% to

US$15.4bn in the first three quarters versus the

same period last year, according to LPC data.

PRICING BOTTOMING OUT?

Some of the recent loans for high-grade Indian

credits have offered richer pricing, pointing to a

slow reversal of the compression prevalent for

most of the year.

For instance, the mandated all-in pricing

on SBI’s new five-year loan is around 130bp,

significantly more generous than the 90bp all-in

on its US$750m three-year loan that closed to a

poor response in July.

Indian agrochemicals company UPL’s US$3bn

five-year loan backing its purchase of US-based

Arysta LifeScience Corp also offered attractive

pricing. UPL is rated BBB-/Baa3/BBB- and its

loan pays a top-level all-in pricing of 175bp based

on an interest margin of 160bp above Libor.

“There is some anecdotal evidence that pricing

is beginning to bottom out. UPL, for example, is

offering pretty good returns for a BBB- credit, but

there is no clear pricing trend yet,” said a second

Singapore-based loans banker.

However, the improved pricing may not be

enough to entice some new lenders.

“The new flow is largely from the same set of

borrowers that have been active in offshore loan

markets in the past couple of years,” said a senior

Hong Kong-based loan syndication banker. “Quite

a few of them have raised funds at tight pricing

thanks to a handful of lenders that still are hungry

for exposure to these credits at those pricing levels.”

“Unless there is a significant improvement in

pricing, the broader lender base might stay away

from these deals.”

Chien Mi Wong