India Inc doubles up on borrowing overseas after sovereign upgrade

Mumbai: Domestic firms including Credila, Muthoot Finance and Hero FinCorp are rushing to tap offshore markets after S&P Global Ratings upgraded India’s sovereign rating to BBB from BBB-, the nation’s first upgrade in 18 years. They are eyeing more than $2 billion in overseas fundraising in the coming weeks, according to people familiar with the matter.

The move, with the firms citing resilient growth and fiscal consolidation, is expected to narrow funding spread with peers and lower borrowing costs. The companies that were preparing to price debt at a premium over secured overnight financing rate (SOFR) now expect cheaper access to global capital.

“Following India’s S&P ratings upgrade, international capital markets have seen renewed momentum, with Sammaan Capital raising $300 million and Muthoot Finance securing $600 million, reflecting stronger investor sentiment toward Indian credits,” said Sameer Gupta, head, India & South East Asia DCM, Deutsche Bank. Sammaan, formerly Indiabulls, was the first to move, raising $300 million in three-year bonds at 8.95% last week. Muthoot Finance followed with a $600 million, 4.5-year bond at a 6.375% yield. Credila, the renamed HDFC Credila, is seeking up to $600 million in loans from foreign lenders, usually marketed at spreads of 135-150 basis points over SOFR.

Hero FinCorp is exploring its first-ever offshore bond issuance and could raise up to $300 million through a dollar-denominated bond.

Indian issuers are likely to benefit from spread compression following S&P’s upgrade. “Positive impetus on the back of this upgrade will help lower the risk premium on the sovereign’s debt as well as ease corporates’ offshore borrowing costs,” DBS said in a report following India’s upgrade.

However, risks remain as soon after the upgrade, the government moved to cut taxes to boost consumption which pushed spreads wider, wiping out some gains after overseas bonds rallied 5-10 basis points in mid-August. A basis point is a hundredth of a percentage point.One bond investor said that private credit remains “many notches down”, which would mean that international investors are unlikely to reprice those risks solely on the sovereign’s improvement. The benefit will be felt most by issuers priced closest to sovereign levels.Meanwhile, US tariffs and Federal Reserve policy will be watched as important developments for fundraising in the future.

“This positive shift-further supported by market expectations of a potential September Fed rate cut following chair Powell’s Jackson Hole speech-has Indian issuers actively assessing opportunities where dollar funding swapped into rupee remains competitive against domestic liquidity,” said Gupta. US tariffs on Indian goods doubled to 50% from Wednesday, raising concerns over India’s export competitiveness. The eventual impact depends on duration of these punitive rates, said Radhika Rao, senior economist at DBS.