Blog Markets Open for Indian and Indonesian Borrowers
This is good news for India and Indonesia, Ashish Sharma, Head of Loan Syndication, APAC at Credit Suisse told the AIC.
Syndicated lending in Asia Pacific (ex-Japan) scaled a record high of USD523 billion in 2014, up 13 percent on the previous year. Acquisition financing was “a key driver for the loan market”, although refinancing was the main source of volume”, according to Michael Tierney, Head of Leverage Finance, Credit Suisse.
There was, and remains, strong liquidity in the high yield bond markets too. New issuance posted an all-time record of USD426 billion for the third consecutive year. Borrowers throughout Asia Pacific were eager to lock in funding at low rates before the U.S. interest rate cycle turned, and yield-hungry regional and international banks as well as investors were eager to lend.
“However, at historically low rates lenders struggle to compete on price, so there has been some slippage on the strength of covenants,” said Tierney.
Indian and Indonesian borrowers are keen to take advantage of the benign environment. Both countries have newly-elected governments with ambitious infrastructure spending agendas, and private and public enterprises in each nation are likely to be regular issuers of debt in domestic and international markets.
Moody’s Investor Services rate India and Indonesia investment grade Baa3 and they trade at similar yield spreads over U.S. Treasury bonds (about 190 basis points), noted Sharma.
However, the Modi administration in India is in a better position to implement reform and withstand external shocks than the Widodo government in Indonesia, argued Santitarn Sathirathai, Head of Southeast Asia and India Economics Research, Credit Suisse.
“India is much less vulnerable to the tightening of global funding conditions than Indonesia, will benefit more from the downturn in the commodity cycle and economic growth should be higher,” he said.
Alexandre Bouchardy, Head of the Specialized Fixed Income Group at Credit Suisse Asset Management agreed.
Although both countries are attractive from a bond market perspective, India has the edge because it would be better able to endure a jolt to its terms of trade and its currency should be more resilient, he said.