(Bloomberg) -- Talk with anyone in international finance now, and the discussion will sooner or later turn to India. The country’s bonds are being added to global indexes, drawing some of the market’s biggest fund managers who are betting on strong economic growth.
And Prime Minister Narendra Modi’s ambitions to fashion a developed nation by 2047 — India’s centennial as an independent country — has some of the world’s most deep-pocketed investment firms lining up to get a piece of the action. They’re betting the transformation will inevitably lean heavily on the country’s developing credit market.
But it’s a story fraught with risks. India need only look north to China to see what can go wrong and to understand the bumps it may hit along the way.
Bloomberg News gathered some of the most important names in India’s financial market on Friday in Mumbai to ascertain the role that credit will play in building Modi’s Road to 2047, as well as who the winners might be along the way and what could happen if things veer off course.
The country will need to tap foreign capital and open up markets further as it develops, Reserve Bank of India Governor Shaktikanta Das said in an interview at the India Credit Forum.
One obstacle facing India is the perception that its markets are overly bureaucratic. Ananth Narayan, who looks after market regulation at the Securities and Exchange Board of India, told the forum he’s open to suggestions about how the regulatory burden on foreign investors can be reduced.
A major opportunity for overseas capital will be funding infrastructure and the companies involved in its construction, in part because the corporate bond market isn’t deep enough at present. More measures to enable its expansion are a work in progress, Das said.
Traditional lenders are somewhat constrained amid a struggle to increase deposits as savers instead flock to a booming stock market, with the NIFTY 50 gaining about 28% over the past year, including dividends.
That dynamic is creating opportunities for local players in India’s private credit market, which is headed for its first $10 billion year. It’s also drawn BlackRock Inc., which plans to tap direct lending opportunities through a venture with billionaire Mukesh Ambani’s Jio Financial Services Ltd.
There will be a boom in private credit in the country over the coming years, said Prasanna Balachander, group head for global market sales, trading and research at ICICI Bank Ltd. India needs to make more debt available to high-yield companies, he said.
For now, watchdogs remain somewhat wary of the asset class.
“At a global level, I think private credit is increasingly posing certain risks and I think every central bank and regulator should be looking into it,” Das said.
The RBI has urged shadow lenders to put in place robust risk mitigating systems like assessing credit worthiness of individual borrowers in a more comprehensive manner. The central bank also tightened regulations late last year, which slowed bank lending to those non-bank financial institutions.
The RBI is watching over the credit market very closely, said Das. “When there’s a moment, when necessary, we take action.”
Week in Review
- Boeing Co. took a step toward raising as much as $25 billion in debt and equity, funds that would give the troubled planemaker the financial resources to withstand a paralyzing strike and work its way through a series of operational setbacks. It also got a short-term $10 billion credit facility. The planemaker is set to report quarterly earnings on Oct. 23.
- JPMorgan Chase & Co., Goldman Sachs Group Inc. and Morgan Stanley sold more than $19 billion of US investment-grade bonds combined, after all three banks reported earnings that surpassed analyst expectations.
- A key measure of perceived riskiness in US blue-chip company bonds has fallen to its lowest levels in two decades, as investors vie for debt that can still offer relatively high yields without too much default risk.
- Banks risk missing out on lucrative underwriting fees on two of the biggest buyout deals in the market as private-equity firms tweak debt terms mid-way through the sales process. Meanwhile, private equity firms are pushing for greater flexibility to give themselves payouts, even when they’re losing money.
- Goldman Sachs Group Inc and Citigroup Inc. are among 22 banks set to provide Clayton Dubilier & Rice with buyout financing for a stake in Sanofi SA’s consumer health division.
- Jane Street Group LLC sold a $1.15 billion junk bond and repriced a $3.212 billion loan, raising additional capital for trading as the firm pushes further into fixed-income.
- Golub Capital is leading an effort to refinance the debt of software firm Optimizely Inc. with a new $1.1 billion facility that would stay in place if the company gets sold.
- India’s private credit market is headed for its first $10 billion year, as an unprecedented flurry of lending from local firms is fueling competition with global giants such as KKR & Co. and Oaktree Capital Management.
- Billionaire Gautam Adani’s conglomerate postponed a dollar bond offering at the last minute after some investors pushed back on the pricing, in a rare instance of a borrower delaying a deal in the final stages of marketing.
- Carmakers’ woes are turning into one of the global corporate bond market’s biggest pain points, with investors bailing out of the sector’s debt as vehicle sales stall and competition rises.
- Platinum Equity-backed Aventiv Technologies has told investors there’s been interest from multiple parties to purchase the prison-phone company as it faces a December deadline to reach a buyout deal or face potential bankruptcy.
On the Move
- Apollo Global Management Inc.’s Olga Kosters, who co-managed the firm’s private credit secondaries effort, has left to start a new fund focused on trading private credit stakes.
- Sumitomo Mitsui Financial Group Inc. is hiring a trio of bankers from JPMorgan Chase & Co. to grow its collateralized loan obligation platform. The bankers are Christine Ferris, Anusha Joly and Mussie Tizazu.
- Jon Fox, the former president of alternative investment firm Värde Partners, has joined MidOcean Partners as global head of capital formation.
- Indian private equity firm Multiples Alternate Asset Management Pvt. appointed Rahul Chawla as managing director of its credit strategy division.
--With assistance from Alice Huang and Dan Wilchins.
©2024 Bloomberg L.P.