NRIs to Invest in Dollar Bonds of Indian Companies

By siliconindia   |   Tuesday, 17 January 2012, 01:13 IST   |    2 Comments
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Bangalore: Non-Resident Indians (NRIs) and confident Indian investors are likely to invest in the dollar denominated bonds on Indian Companies, reports Shailesh Menon of ET Bureau.

These bonds were previously neglected by the Foreign Institutional Investors (FIIs), as the Indian companies can fail in their debt repayments, which could lead to the economic downfall, reducing the profits incorporated by the FIIs. As there is very less hope for repayment of the Indian companies, the FIIs are selling their bonds at 40 percent to 60 percent discount of the original price that they bought it for.

Dollar bonds are presently promising 7-7.5 percent yield to the corporates. The Indian companies currently are measured as risky, especially in the overseas, because of their low credit rating of 'BBB minus'.

Nitin Jain, Head of Edelweiss Capital Markets said, "There are worries of debt repayment defaults; also there is a feeling that Indian companies will not do well over the next few quarters. This has resulted in foreign banks and institutions reducing exposure to Indian debt."

Nitin also added, "In these times of currency volatility, there's huge risk involved in bringing money to India and investing them in local assets. There's greater comfort for NRIs to invest in dollar bonds and earn higher yields on them." Whereas Wealth Managers say that these bonds could fetch NRIs between 5 to 7 percent.

NRIs and local investors are looking forward for opportunities, especially FCCBs (foreign currency convertible bonds) that are up for deliverance this year. Overseas, these bonds are trading at nearly 9 percent yield and the bonds issued by Tata Steel, Reliance Industries and Bharti Airtel will provide 8.5-9 percent yield.

What Raghvendra Nath, Managing Director of Ladderup Wealth Management said is rather than monetary profit, these dollar bonds will eliminate currency risk for NRIs. For many investors, such dollar bonds are not merely for profits. Many such investors are using the RBI's slacken transfer of funds. This allows the investors to invest up to $2,00,000 in foreign assets every year to invest in these kinds of dollar bonds.

"HNIs (high net worth investors) are investing in dollar-denominated bonds to diversify their portfolio. This strategy allows investors to have exposure to a different currency other than the rupee. Several FCCBs are currently trading at a significant discount to their issue price. NRIs are cherry picking the well-known names as value buys," says Prateek Pant, Head of Wealth Solutions at RBS. Nitin Jain said rich investors invest in dollar bonds to pocket the additional 'carry' value on rupee. "They are hedging the rupee (futures) before investing in these bonds. They earn as additional 5-6 percent carry value on rupee along with 6-7 percent yields on bonds," says Nitin Jain.