Foreign buy of Indian debt up 20% to $19 bn this year

In a record high, foreign investors have purchased Indian debt securities worth $19 billion this year, which marked a 20 per cent jump from the previous year and even saw the so-called 'junk' bonds being lapped up aggressively despite poor corporate and sovereign ratings.

Junk bond is colloquially used for a high-yield or non-investment grade bond. These bonds are generally fixed-income instruments that carry a lower rating and are called so because of their higher default risk in comparison to the investment-grade securities.

The year passing-by has seen international investors buying junk bonds worth at over $5 billion issued by Indian entities, as companies had to look overseas to raise funds for their working capital needs and also to retire their existing costly loans including those raised domestically. Across all investment grade categories, the Indian companies and banks mopped up a record high amount of $19 billion in 2014 — led by corporate giant Reliance Industries that grossed up a hefty $3.3 billion in forex debt.

The interest in forex debt received a further fillip due to the rupee funds remaining costly for the 

third year in a row.

On the flipside, the spike in forex fund raising spree has taken the nation's external debt to a little more than a quarter of its GDP at over $500 billion. Investment bankers see more activity in the debt market in the first quarter of 2015 on indication by the US central bank of a rate hike April onwards.

The forex fund raising had risen by a much sharper 60 per cent in 2013 to $15 billion. As per the market data, the coupon rates on forex bonds varied from a low of 3.25 per cent for SBI to over 8.75 per cent for junk bonds from companies like Motherson Sumi and Rolta during 2014. India Inc raised these dollar money for working capital needs as also to retire high cost rupee debts. Among others, the diversified Essar Group and telecom major Bharti Airtel raised over $5 billion to pare their costly rupee loans.

On an average, companies make a clean saving of 6 per cent in financing cost, according to investment bankers who attributed the massive spike in forex borrowing to the elevated debt servicing cost in the country apart from fearing higher interest rates, following the US Fed hints of jacking up interest rates by early 2015.