Moody's: Indian Foreign Currency Bonds to Reach Record High in 2014

Foreign currency bonds issued by Indian firms are headed for a record high in 2014 and even higher in the next year as the country's economy powers up, according to Moody's, the ratings agency.

Moody's estimates the issuance for 2014 at between $13bn and $14bn. The cross-border bond issues by non-financial companies for the January-July period has reached $11.2bn, surpassing the total $10.2bn issued in 2013.

Moody's report said credit spreads on foreign currency denominated bonds issued by Indian companies tightened more than the spreads on foreign currency bonds across Asia between January and August 2014.

The tighter spreads allow more Indian companies to issue foreign currency bonds, according to regulations set by the Reserve Bank of India.

"More companies will tap the international markets to fund their growth and investments because the Indian government has slashed the withholding tax on interest payments to international investors, and raised the amount of guarantees that Indian entities can provide for foreign currency debt issued by their overseas subsidiaries," said Vikas Halan, a vice president at Moody's.

Moody's Analytics, the research wing of Moody's Investors Service, said on Monday that the Indian economy likely accelerated 5.1% in the second quarter of 2014 and added that it expects a steady return of the country to its potential growth by 2016.

"Narendra Modi has taken office at an opportune time. The economy is in the early stages of a cyclical upturn, albeit a slow one, after GDP growth languished under 5% for the better part of two years," the Moody's Analytics statement showed.

According to the research firm, India's potential growth is currently around 6% but it says that the same could easily lift towards 7% with some modest economic reforms.