India tightens ‘offshore borrowing’ approvals

Bloomberg

India’s central bank is reviewing its process for allowing companies to raise money overseas due to concern that any increase in rupee volatility may hurt borrowers’ ability to repay debt, a person familiar with the matter said.
The Reserve Bank of India is spending more time scrutinising companies’ hedging practices, vetting borrowers more closely to prepare for any financial-market fallout from an increase in US interest rates, the person said, asking not to be named as the matter is private.
The new process is resulting in slower approvals in recent weeks for offshore debt sales, people said. The RBI hasn’t issued loan registration numbers to some borrowers recently, they said. Companies need to obtain LRNs for raising debt overseas under the country’s external commercial borrowing guidelines.
“RBI’s prime concern is to avoid any defaults by companies offshore, “said Raj Kothari, head of trading at Jay Capital Ltd. in London. “Such scrutiny will further improve the trust of international investors in Indian issuers.”
Overseas bond sales have stalled this month after Indian firms raised $15.6 billion last year, most since 2014, taking advantage of record-low borrowing costs. Concern about the pace of inflation and the outlook for borrowing costs in the US sent tremors through global markets in early February, and the rupee is one of the worst-performing major global currencies so far this year.
While offshore dollar bond issuance so far this year has maintained pace with last year, any rest- rictions on borrowing rules could impact some of India’s biggest borrowers including Bharti Airtel Ltd, ONGC Videsh Ltd., Reliance Industries Ltd, Indian Railway Finance Corp Ltd. and Suzlon Energy Ltd. which have debt coming due this year.
An email and text message to RBI spokesman Jose Kattoor was unanswered. The RBI already keeps a close watch on Indian firms borrowing abroad and has a pricing cap on offshore borrowing, restricting the number of companies looking to access foreign debt. This means that only 5 percent of dollar bond deals from Asia excluding Japan come from Indian borrowers.
Central bank rules state that Indian firms can’t sell three-to five-year debt abroad with an all-in cost of more than 300 basis points over the six month London interbank offered rate and 450 basis points for notes with tenors of more than five years.

PNB heads for 13-month low
Bloomberg

Punjab National Bank led other state-run banks lower for a fifth day on Tuesday as concern about stress and risk levels at the lenders increase amid a $2 billion bank fraud.
PNB fell as much as 4.7 percent and was headed for its lowest close since January 2017. UCO Bank declined as much as 3.7 percent while Allahabad Bank Ltd. lost 4.2 percent.
“The disclosure of $1.75 billion of fraudulent transactions at PNB will raise doubts about underwriting standards and
operational risks at Indian state-owned banks,” Bloomberg Intelligence analyst Diksha Gera wrote in a report.