Tightened system liquidity more likely to immediate higher offshore bond issuance by NBFIs: Fitch Scores

Tightened system liquidity in India, amid sustained financial institution and non-bank monetary establishments’ (NBFIs’) credit score development, is more likely to immediate higher offshore bond issuance by NBFIs within the close to to medium time period, in keeping with a Fitch Scores report.

NBFI issuance has already picked up in H1 of 2024, though issuers are more likely to stay price-sensitive when elevating offshore funding, it added.

“Indian finance firms’ US greenback refinancing wants are longer-dated, reflecting a latest pick-up in US greenback bond issuance in 1H24 after muted exercise in earlier years.

“We anticipate Indian issuers to faucet US greenback markets opportunistically when onshore-offshore charge differentials flip beneficial,” per the report on APAC EM (Asia Pacific Rising Market) NBFIs.

Fitch noticed that a lot of Indian issuers have returned to offshore bond markets after a hiatus lately.

Muthoot Finance Ltd, Manappuram Finance Ltd and Indiabulls Housing Finance Ltd issued medium tenor US greenback bonds in 1H24 for the primary time for the reason that begin of the Covid-19 pandemic, becoming a member of common issuer Shriram Finance Ltd..

“We anticipate funding prices to rise reasonably for rated Indian issuers, however with out materials refinancing danger for better-rated entities,” the ranking company stated.

Refinancing exercise

Fitch emphasised that refinancing exercise ought to be well-supported in India amid a beneficial financial backdrop, though tighter banking sector liquidity will incentivise issuers to diversify funding sources. International financial institution funding, home and offshore bonds, and securitisation offering potential options.

The report noticed that many Fitch-rated NBFIs in India, Indonesia and Sri Lanka give attention to shopper and micro, small and medium enterprise loans, with tenors starting from a couple of months to round three years, whereas longer-tenor house loans and different secured financing kind a smaller share of sector belongings. Due to this fact, some firms use larger ranges of short-term debt to higher match their asset tenors.

Rated Indian and Indonesian issuers’ short-term funding maturities, amounting to 30 per cent-40 per cent of whole belongings, largely align with their brief to medium tenor asset profiles. Quick-term maturities are largely financial institution loans, which tempers the refinancing danger.