The debt papers of these companies are being lapped up by the foreign offices of Indian banks.
Indian banks, with resources at their disposal, are buying these papers, at spreads up to 250 basis points over the benchmark London inter-bank offer rate (Libor). The spreads on these papers were up to 80 basis points over Libor six months back.
The papers being sold by foreign banks include that of top companies such as Tata Power and Reliance Industries.
Banks that are making the most of the investment opportunities include State Bank of India (SBI), ICICI Bank, Bank of Baroda (BoB) and Bank of India (BoI).
The cost of borrowing from banks has gone up. International lenders are liquidating their investments to fund their subprime losses.
"As the yield goes up, it throws an opportunity for you, both price and yield opportunities. There is certain room for opportunistic investment," said a senior treasury official with one of the Indian banks involved in buying Indian papers available at a discount of as much as 4.5 per cent.
Most of the funds used by the Indian banks were raised much before global investors became credit averse and cost of mobilising funds increased. The country's largest bank, SBI, had raised most of the money in early 2007 at spreads of below-50 basis points over Libor.
Indian papers are available at a good bargain. Companies earlier had issued bonds to international investors. The domestic banks, which could not get these papers in the primary issuance at a good rate, can get them in the secondary issuance at a good yield, said a senior official at Bank of Baroda.
"We have been buying Indian papers in the secondary market through our international branches. For us, the risk perception of these companies has not changed. The spreads have been very attractive," said a senior official of SBI.
In July, Indian companies, looking to tap the overseas debt market, had to pay a spread of 70-80 basis points over the six-month Libor. However, if an Indian corporate were to raise funds overseas now, it will have to pay up to 225-250 basis points over the benchmark rate.
ICICI Bank raised $2 billion at 149 basis points over six-month Libor in the last week of September, becoming the first issuer to turn to the turmoil-hit international debt market in the aftermath of the sub-prime crisis.
In addition to papers of companies, Indian banks are also buying bonds issued by banks from the country. SBIs 5-year bond issued in February and bearing a coupon of 38 basis points over the three-month US Libor, was quoting at a yield of 141.14 basis points over Libor in December, making it an attractive investment proposition.
For Indian investors, this is of great comfort. Foreign banks want to get these investments off their books at a decent spread as they cannot afford to block their capital at a decent grade. "If they keep them on their books, they will have to mark them to market at the end of the quarter," said a banker.
