Only FY20 has seen higher overseas fundraising in recent years, at $20.3 billion via 49 issues. The FY27 tally is the fourth highest since FY93 (1992-93), with three other leading years — FY08, FY15 and FY20 — recording between $18 billion and $21 billion in overseas fundraising.
The latest wave has been driven largely by debt issuance, encouraged in part by Reserve Bank of India (RBI) measures to support the rupee. While companies tapped lower borrowing costs overseas in FY08 and FY15, the FY20 increase followed a relaxation of external commercial borrowing restrictions.
Debt accounted for $17.1 billion of the FY27 total so far, with convertible securities contributing a further $120 million. There were no equity issues.
Lower borrowing costs and deeper overseas markets have encouraged more companies to raise capital outside India, said Sumat Chopra, partner at consultancy Kearney and head of its private equity and mergers and acquisitions practice for India.
On June 8, the central bank introduced concessional swap facilities for funds raised through three instruments: External commercial borrowings (ECBs), foreign currency non-resident (bank) deposits, or FCNR(B) deposits, and overseas foreign currency borrowings (OFCBs).
ECBs are open to a broad range of participants, including companies; FCNR(B) deposits are mobilised by banks from non-residents; and OFCBs are available to banks.
The RBI said on September 21 that $5.30 billion had been raised through ECBs using the swap facility. The FCNR(B) window closed on August 31, while the ECB and OFCB windows remain open until December 31, 2026.
Overseas debt fundraising is likely to increase further by the end of the year, said Manisha Shroff, partner in the corporate and commercial debt capital markets practice at law firm Khaitan & Co. “We would see an uptick,” she said.
OFCBs and ECBs differ in the types of borrowers they accommodate, their procedures and the instruments typically used. The OFCB route is restricted to regulated entities such as banks, while the ECB framework covers a wider range of borrowers, including companies. Both permit bond issuance in overseas markets, although ECBs are more commonly used for overseas loans. Prime Database’s overseas debt capital market figures, however, cover all overseas bond issuances.
The absence of overseas equity fundraising is striking. Indian companies last raised equity in these markets in FY19, when they mobilised $1.8 billion. This is the longest gap without an issue in data going back to FY93.
Such fundraising has tapered off as foreign portfolio investors have become more active in domestic markets. Depository receipts once gave Indian companies access to pools of foreign capital, but their appeal has waned as overseas investors have gained easier access to Indian-listed shares.
Yet foreign appetite for Indian equities can no longer be assured. Overseas investors were net buyers in 20 of the 24 years to FY22, but have been net sellers in four of the past five, suggesting that companies listed on Indian exchanges can no longer count on easy access to foreign capital.
Chopra said the rise in debt financing was likely to hold steady for some time. There may be a case for equity too, he said, but demand is limited because many developed markets are focused on artificial intelligence and on larger, often global, companies. Smaller, domestically focused Indian groups are unlikely to command valuations overseas as high as those they enjoy at home, although technology and software companies with foreign customers may find slightly more traction.
G Chokkalingam, founder of Equinomics Research, said foreign investors remained interested in equity fundraising in select sectors. “Real estate, healthcare (hospitals), banking and financials, and infrastructure are the four sectors to watch,” he said.
Regulators are also opening another route to overseas equity capital. At its September 24 board meeting, the Securities and Exchange Board of India approved a framework allowing real estate investment trusts and infrastructure investment trusts to raise funds through depository receipts.
The prospects for overseas fundraising will also depend on geopolitics and the rupee’s trajectory, Chokkalingam said. A weakening currency erodes foreign investors’ returns.
Recent foreign exchange measures, including restrictions on speculative hedging and direct dollar supplies to public sector oil marketing companies, should offer near-term relief, according to an October 14 report by Ambit Capital. A sustained recovery, however, will require an improvement in India’s underlying external flows, it said.
