June 6, 2019 / 8:24 AM / a year ago

Indian NBFCs flock offshore

* Loans: Borrowers eye debuts with short-tenor loans

By Prakash Chakravarti, Evelynn Lin and Chien Mi Wong

HONG KONG, June 6 (LPC) - 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 a 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 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.


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 with 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 they 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. ( Reporting By Prakash Chakravarti, Evelynn Lin and Chien Mi Wong; Editing by Chris Mangham and Steve Garton)

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