Foreign currency bond issues in India will reach record high in 2014: Moody's

Foreign currency bond issues in India issued by non-financial firms will reach a record high of $13-$14 billion in 2014, and could be even higher in 2015 if the cost of hedging exchange-rate risk declines, says Moody's report.

Interest rates on foreign currency bonds are lower than those on rupee-denominated bonds, but the cost of hedging exchange-rate risk makes it more expensive for Indian entities to borrow in foreign currency.

Increased investor interest for Indian credits has resulted in the credit spreads on foreign currency denominated bonds issued by Indian companies tightening more than the spreads on foreign currency bonds across Asia between January and August 2014.

"More companies will tap the international markets to fund their growth and investments because the Indian government has slashed the withholding tax on interest payments to international investors, and raised the amount of guarantees that Indian entities can provide for foreign currency debt issued by their overseas subsidiaries," according to Moody's.

Three sectors - oil and gas, metals and mining, and telecommunications issued 67% and 76% of the foreign currency bonds from Indian non-financial corporates in 2013 and 2014, respectively.

Moody's also expects an increase in issuance from pharmaceutical and information technology and business process outsourcing companies, because such firms derive a large part of their revenues from exports.