India’s contribution to the syndicated loan market volume so far this year can be summed up as disappointing at best. Syndicated loan volume during the first half has plunged 60% year-on-year to $20.2bn — the lowest since 2006, according to Dealogic.
Bankers anticipating a pick-up in corporate borrowing on the back of prime minister Narendra Modi’s election, which was meant to be followed by better growth and a stable policy environment, have been left empty handed.
But for treasury officials at Indian borrowers, things are looking up. The drop-off in volume has led to a huge and steady downtrend in pricing, meaning the time is now for well-banked Indian corporate borrowers to tie up refinancings.
A few companies have already woken up to the opportunity. Recent examples include Manipal Group, which has enlisted ICICI Bank to help it refinance debt of around $70m, according to sources, and pharma major Biocon, which is in the market for $200m to refinance a loan raised by its Malaysian entity.
But the name that is really capturing attention is Tata Steel. Having closed a $5.6bn loan as recently as the end of 2014, the ballsy borrower is back and looking to reduce pricing on a $3.1bn portion of that December loan. And who can blame it? Despite operating in the struggling steel sector, the borrower is expected to shave 40bp-50bp off the multi-trancher.
That’s not to say it’s only the likes of Tata Steel that can benefit. In fact, those who stand to gain the most from intense competition among banks to keep Indian assets are second tier companies. They can now get away with paying all-ins of around 250bp for a five year, a substantial drop from the 300bp-plus they were paying less than a year earlier.
It’s true there are also bargains to be had in the bond market at the moment. Just last week, Adani Ports and Special Economic Zone managed to price a $650m five year bond flat to where some of its better rated Chinese peers are trading.
But with loans it’s not just in pricing that companies will benefit. They also get to enjoy other perks of the loan product, such as flexibility on covenants, repayments and refinancing that the bond market cannot compete with.
If that were not enough, the likely resilience of the loan market to upcoming rate increases from the US Federal Reserve has to be the icing on the cake. When the first move upwards does come, it is expected to leave the loan market unfazed, with only a small impact on spreads, if anything at all.
Borrowers are pulling the strings in Indian loans for the moment. They should cash in now.