Do you think Indian companies will be able to raise global bonds after the high fiscal deficit?

Your question is an important one as it raises a big issue facing a lot of global bond issuers. Will the sharply higher fiscal deficit raise the hackles of bond investors and will they give a tepid response? Will debt investors be apprehensive about a possible downgrade by the sovereign rating agencies? These are important questions.

However, these concerns have not dissuaded 4 companies from going ahead with their global bond issues. These companies include IRFC, Continuum Green Energy, IRB Infra and ReNew Power. These four companies, between them, will raise close to $2 billion from the global market via overseas bond sales in the coming weeks.

From a medium to long term perspective, the appetite among global investor groups will be critical as the Budget has already announced a steep 9.5% fiscal deficit for current fiscal year 2020-21 and 6.8% for next fiscal year 2021-22. In fact, fiscal deficit is slated to reach 4.5% only by fiscal year 2025-26.

This should ideally weigh on future inflation expectations and rising yields have been negative for bond prices, and therefore for bond investors. IRFC plans to raise $750 million via 10-year and 30-year bonds simultaneously. The mark-up over LIBOR is expected at 170-230 bps. Continuum will raise $560 million, ReNew $460 million and IRB $300 million.