RBI’s forex inflow measures greeted with skepticism offshore

A raft of measures the central bank announced late Wednesday aimed at supporting the flagging rupee included steps to make it easier for local firms to secure funds offshore, such as doubling the amount that firms can raise in overseas debt without seeking permission.

But Indian firms have struggled to raise offshore financing amid the global bond rout, and the RBI’s measures probably won’t make things easier.

“It is unlikely that offshore bond issuance will pick up after the RBI’s relaxation measures, considering the current dollar bond issuance window remains challenging,” said Eric Liu, credit desk analyst in Hong Kong at Nomura Holdings Inc.

The measures also make it easier for foreign investors to buy local bonds. But there might not be much demand with the rupee weakening and one of Asia’s highest inflation hitting the economy.

“Foreign portfolio inflows have been lukewarm to debt, with net outflows for the past six months and existing debt limits still to be exhausted,” DBS analysts Radhika Rao, Eugene Leow and Philip Wee wrote in a note.  

Tepid demand from offshore bond buyers would be a blow to the central bank in its battle to defend the falling rupee, which has weakened nearly 6% this year, putting it on the threshold of 80 per dollar for the first time. A failure to arrest the currency’s fall may also spell trouble for dollar debt issuers whose earnings are local and haven’t hedged their offshore liabilities.

The measures also increase the cost cap on the offshore debt that some local firms can raise. But it only applies to investment-grade borrowers, meaning that high-yield issuers, who are most constrained by the cost cap, wouldn’t gain from the move.  It would not “boost offshore borrowing from Indian companies,” said Bharat Shettigar, head of Asia corporate credit research at Standard Chartered.

This story has been published from a wire agency feed without modifications to the text.

First article