- For almost three decades after the opening of the Indian economy, the Indian government, as well as the Indian companies, shied from raising debt in foreign currency
- At the very beginning of 2022, Reliance Industries, the largest company in the country, successfully raised 4 billion dollars from international investors in global currency.
- From all the signs of the macroeconomy, one can argue that the 2020s are going to be the golden decade for the Indian economy.
For almost three decades after the opening of the Indian economy, the Indian government, as well as the Indian companies, shied from raising debt in foreign currency. The fear of defaulting on the debt ensured that Indian companies and the government rather paid higher interest rates than raising money globally.
However, in the ongoing decade, a new India is rising, which is confident about its economic growth and debt repayment capabilities. At the very beginning of 2022, Reliance Industries, the largest company in the country, successfully raised 4 billion dollars from international investors in global currency, making it the largest foreign currency debt raising ever in the country.
The enthusiasm of the global investors to extend debt to Indian companies was very evident from the oversubscription of the bonds. The issue was “nearly 3 times oversubscribed with a peak order book aggregating around $11.5 billion,” the company said in a statement.
The debt raising by Reliance was remarkable in every aspect. The value of the debt raised by the company was almost double the previous high of 2.2 billion dollars raised by ONGC Videsh Limited in 2014. Reliance raised debt at one of the lowest interest rates ever witnessed for an Indian corporate outside Japan. The bonds with 10 years, 20 years, and 40 years maturity periods were raised at interest rates of 2.875%, 3.625%, and 3.75% coupon rate respectively.
“This transaction is significant on various counts – (it is) the largest-ever foreign currency bond issuance from India, tightest ever implied credit spread over the respective US Treasury across each of the 3 tranches by an Indian Corporate, lowest coupon achieved for benchmark 30-year and 40-year issuances by a private sector BBB corporate from Asia ex-Japan, and first-ever 40-year tranche by a BBB private sector corporate from Asia ex-Japan,” the statement said.
Reliance Industries is not the only entity from India that is raising debt in global currency. ReNew Power, a solar energy company, also raised 400 million dollars at a competitive rate of 4.5% by issuing green bonds for 5.25 years.
However, these attempts are still compared to what the Indian government is aspiring. The Government of India, which raises thousands of crores of rupees from domestic and international investors every year – but all the money is raised in Indian currency which has higher interest rates – is considering listing India as part of the global bond index.
India is a developing country and the government needs to finance large infrastructure projects and assist the development of many modern industries which means it needs a lot of capital at cheap rates. In order to broaden India’s pool of available money, the Modi government is mulling over the listing of India’s sovereign bonds on global indices.
Last year, the Indian government brought the Taxation (Amendment) Bill to put an end to retrospective taxation for once and all. The foreign investors were shying from Indian Government bonds (IGB) due to lack of clarity on the taxation side, and this was among the major demands to clear listing on international indexes.
In the current financing regime, the Scheduled Commercial Banks hold most of the public debt in India and due to this, their private lending suffers. With the listing in the international bond markets, the Indian government would get billions of dollars every year at a very low-interest rate.
According to various researches, the listing into the global bond index would soften the Indian government bond yields by 50 basis points. In simple terms, if the Indian government is now getting loans and 6.5 percent per annum interest rates, it would get at 6 percent after the listing. And this means the government would save billions of dollars every year in interest rate payments.
With access to cheaper capital, the Indian government would be able to build roads, railways, piped gas, water, and all other kinds of required infrastructure very efficiently and this will accelerate the economic growth in the coming years. The Indian corporates would also be able to finance the large projects with cheaper loans.
From all the signs of the macroeconomy, one can argue that the 2020s are going to be the golden decade for the Indian economy, with India’s GDP overtaking that of Japan and Germany by the end of the decade to become the third-largest economy in the world after China and the United States.