Top Indian companies are likely to shift their borrowing to the domestic market as global rates and hedging costs have made fundraising in US dollars unviable, says Barclays Bank India managing director & head of investment banking Pramod Kumar. The Reserve Bank of India will likely ensure sufficient liquidity in the market, which will support the capex plans of companies, he tells Saikat Das. What is changing for Indian borrowers in the current environment? No major refinancing is coming up in the next 12 months, barring an estimated $3 billion, and that is not a worrisome number. Things are likely to improve hereon, paving the way for refinancing going forward. As far as new funding is concerned, companies are likely to look at the domestic market to fund their capex. Good projects and issuers will be able to access local markets. It is the high-yield issuers where there is a bit of concern as rates have gone up significantly for them. What would be repercussions for the Indian credit market? New issuers will tap rupee bonds instead of dollar bonds. This will lead to more demand in the rupee market. There is a reasonable amount of liquidity that the RBI will likely ensure to support capex plans. The upcoming RBI policy may spell assurance for the same. How are companies hedging in view of the rupee volatility? Most of the companies whom we helped raise offshore funds have either fully covered currency risk or partially. While some have hedged the principal, others have done the same for interest payments. A fair number of borrowers with no natural hedges have fully taken care of entire overseas payment exposure. Only a few of them are running naked exposures. With the rupee hovering around 80 borrowers are revisiting their strategy. The RBI has eased rules for external commercial borrowing. It also cleared rating confusions. What sort of fundraising are you expecting? The funding cost will be high for high-yield issuers who are not comfortable with such elevated borrowing costs now. However, the scenario is likely to change. The latest clarification will help lower-rated Indian companies tap overseas money in the next few months once the global uncertainties recede. How does a rupee depreciation affect first-time borrowers? While the Indian rupee is not an outlier, a rapid rise in USD-INR of this kind is playing in the minds of issuers. The rupee hit a lifetime low of 80.06. I do not foresee material depreciation in the rupee’s value from hereon against the dollar. For first-time or existing issuers, the concern is more on the fully hedged cost of overseas borrowing, which is high at the moment. A risk-averse international investor will not settle for any low rate for now unless things turn better globally. Is capital expenditure happening now? Some of the PLI-linked (production-linked incentive scheme) capex has to happen. The proposed 5G capex is good for the economy. Most of the steel capex has already been done with the commodity super cycle getting over. Renewable energy companies have plans for reasonable capex. Most of such funding requirements would be met domestically. Is the bond street on a slow lane? Indian companies sold about $22 billion worth of bonds in 2021. In the first six months this year, we have sold $6.8 billion versus $14 billion in the corresponding period last year. The bond window, particularly the high-yield category, is unlikely to open up in a hurry in the rest of the year. What can trigger risk-on sentiment reviving global bond sales? Two factors can be the trigger. Global crude oil prices slipping below the three-digit number and the Ukraine-Russia situation improving can revive international investor appetite for bond sales, particularly from emerging markets like India. For ESG (environmental, social and governance), where do you think we are standing right now in India? Our government has taken it seriously too. Aggressive targets for renewable energy off-take have been set state wise. No investment is going into new thermal plants. India is being seen as one of the key economies that is emerging big in the ESG space. The latest announcements by large corporations on decarbonising green hydrogen have added a big push to it.