(Bloomberg) -- India Inc.'s dollar-denominated bonds are cooling, threatening to turn away global buyers the companies need to refinance debt.
Returns on the notes have dropped to 3.45% so far this month from 6.8% in May, which was the highest in Asia, according to Bloomberg Barclays indexes. There have been only two Indian dollar bond issuers this quarter: REC Ltd. and UPL Ltd., for a combined $1 billion, set for the lowest in two years.
The slump comes as India gets closer to a junk rating. Fitch Ratings Ltd. last week cut its outlook to negative, and Moody's Investors Service downgraded India's sovereign rating at the start of the month. Mounting concerns about the country's handling of the Covid-19 pandemic have also been a factor in global funds cutting exposure to the nation's corporate debt. Read more about that here.
Local issuers are desperate for international investors with a record $31 billion of offshore debt due this year. Access to funding has been challenging. Offshore loans to the nation's borrowers have declined to an 11-year low so far this quarter. And onshore bond investors increasingly prefer only top-rated companies.
Fitch cut the outlook on the long-term ratings of nine Indian banks to negative from stable, following a similar revision for the sovereign last week, the rating company said in a statement.
“Global funds that follow allocations based on ratings may be reducing exposure to Indian dollar bonds after the Moody's revision and on worries of a longer-than-expected impact of Covid-19 on the local economy,” said A.S. Thiyaga Rajan, a senior managing director in Singapore at Aquarius Investment Advisors Pte. “It should take a few months for investor confidence to return, but this would hinge primarily on how well India handles the pandemic.”
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