IFR Magazine – June 08, 2019

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Indian NBFCs flock offshore

„ ASIA-PACIFIC Borrowers eye debuts with short-tenor loans

Indian non-banking financial companies are

making a beeline for the international loan

markets in search of alternative funding sources,

even as questions swirl over lenders’ appetite for

the country’s financial sector.

Offshore loans totalling around US$1bn

are in the market for non-bank lenders,

including debut borrowings for units of Indian

conglomerates Aditya Birla Group, Larsen &

Toubro, Mahindra & Mahindra and Tata Group.

The heavy supply of NBFC deals comes

as several overseas lenders have turned

cautious toward the sector, which has faced a

funding squeeze at home after the default of

Infrastructure Leasing & Financial Services last

September.

Dewan Housing Finance Corp added to

credit concerns last week with missed coupon

payments on Rs10bn (US$143m) of onshore

bonds due June 4.

“International lenders have not been gagging

for exposure to Indian FIs since the beginning of

last year, when high-profile fraud cases emerged

and defaults followed at other institutions,” said

one senior loan banker in Singapore.

Sentiment among international lenders has

weakened since news of a US$1.8bn fraud at

Punjab National Bank in January 2018, and the

offshore loan markets are littered with failed

deals.

No lenders joined Mumbai-listed Shriram

Transport Finance’s US$350m five-year loan

that closed in April despite the borrower

sweetening the pricing by nearly 60bp on the

second attempt.

The deal had been relaunched in February,

offering top-level all-in pricing of 225bp after

an initial launch in August last year at 165.9bp

all-in.

Earlier in February, State Bank of India, the

country’s largest bank, closed a US$500m five-

year loan with only four banks joining in general

syndication.

This was despite the borrower paying a

significantly richer top-level all-in pricing of

128bp than the 90bp top-level all-in on a

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

response in July last year. No banks joined the

latter loan in general syndication.

Last October, private sector lender Yes

Bank shelved a refinancing of a ¥16.5bn (then

US$146m) one-year Samurai loan it completed a

year earlier due to a management crisis.

NBFCs have enjoyed some more success in

the international bond markets. In late May,

Indiabulls Housing Finance priced a US$350m

three-year senior secured bond issue at par to

yield 6.375%, inside initial guidance of 6.5%

area.

Shriram Transport also sold US$500m of

3.5-year bonds in April at 5.95%, adding to a

US$400m three-year debut at 5.7% in February.

COMPETING FOR DOLLARS

Nearly two years ago – long before the crisis

erupted in the FI sector – Dewan Housing had

struggled with a US$125m three-year loan that

drew five lenders after crawling through a six-

month-long syndication. At that time, Dewan

Housing’s deal suffered because it competed

with a US$150m 3.1-year average life loan from

Indiabulls Housing Finance.

The latest flurry of deals from more than a

handful of Indian NBFCs will raise similar issues

as the deals compete for commitments.

Tata entities – TATA CAPITAL FINANCIAL SERVICES

and TATA CAPITAL HOUSING FINANCE, both units of

Tata Capital, and TATA MOTORS FINANCE – account

for three out of seven deals in the market.

Tata Group companies have already met a

lacklustre reception in the offshore loan markets

in recent months.

In April, a US$1bn loan for Tata Motors’ unit

Jaguar Land Rover Automotive crawled to a

close with only one bank joining in general

syndication. The response was largely due to

JLR’s credit issues, ratings downgrades and

negative outlook for its China business.

Loans for Tata Power and Tata Sons met a

similar reception earlier in January and last

September, respectively.

All of the above-mentioned Indian NBFCs are

making their debuts and are not only competing

with each other but also with their Indonesian

counterparts, which are more frequent borrowers

and have established relationships with retail

lenders such as Taiwanese banks.

“While the latest borrowings from those

Indian NBFCs carry higher pricing than similarly

rated Indonesian credits, we will be cautious

about their non-performing loans ratios. Our

credit department would be comfortable with

the borrowers that have NPL ratios of below

3%,” said a Taipei-based senior loans banker.

Prakash Chakravarti, Evelynn Lin, Chien Mi Wong