India stands on the threshold of economic greatness, if only it can ride out the global credit squeeze and overcome an innate desire to regulate itself out of international competitiveness. Economic growth remains robust but may slow to a credible 7.5%-8% this year despite the wider global slowdown but, like elsewhere in the region, inflation poses the biggest immediate threat to prosperity. Strong commodity prices are feeding through the supply and production chains and sharply higher food prices have given this year’s bout of inflation a...Read more
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If the platitudes being bandied around about the Indian economy are any guide the country has truly arrived. India’s recent economic growth has truly been impressive and in many ways deserving of the accolades that bankers, economists and company executives have been showering it with. However, stern challenges remain if the Indian economy is to maintain its express growth rate.
India’s rapid economic growth is putting significant strain on the country’s ageing infrastructure. Targets for a whopping US$500bn of infrastructure investment by 2012 have been set and the stakes are high because poor infrastructure is the biggest threat to India maintaining the strong economic growth rates it has posted in recent years.
The Indian juggernaut that spent the past few years hurtling down the global M&A street has changed gear and is decelerating, resulting in a slowdown in related capital market activity, particularly syndicated loans. The increased cost of funding as a result of the global credit crisis might have created a deterrent for M&A activity, but Indian acquirers nonetheless remain in discussions on potential M&A opportunities.
The Indian economy’s stunning growth over the part decade has been cause and effect of the growth of bond issuance from the country, both domestically and offshore. While the long-term outlook for issuance growth is positive, the primary market has stumbled thanks to the US sub-prime mess, most notably in the previously buoyant G3 space.
Indian equity markets have been languishing since Reliance Power’s IPO in February with the market effectively being shut since then. Thomson Reuters data shows that total year-to-date Indian primary equity issuance has been just US$14.2bn, versus US$26.3bn in 2007.
Indian G3 convertible bond (CB) issuance has plunged this year due to tight regulations and a widening gap between issuer and investor pricing expectations. Bankers do not expect a quick turnaround although they hope that Indian issuers, desperate for capital to fund growth and to refinance expiring CBs, will become more realistic about pricing and re-enter the market by mid-2009 at the latest.
These are hard times for emerging markets borrowers, but there are always exceptions. And they do not get any more exceptional than the Reliance group and, on this occasion, Reliance Petroleum.
Ballarpur Industries US$560m heavily structured loan has set a precedent for Indian financings with a model for circumventing the country’s onerous offshore borrowing restrictions.