A robust pick-up in US dollar bond issuance by Chinese and Indian non-bank financial institutions (NBFIs) in the first half of 2024 has helped to mitigate refinancing risks associated with debt maturing this year, but will lead to increased refinancing needs in 2027, Fitch Ratings has said.
Indian NBFIs have minimal near-term US dollar refinancing needs in the next 12 months, given a lack of issuance in recent years, Fitch said.
“We believe tighter banking-sector liquidity — prompted partly by regulatory moves — will incentivise local NBFIs to pursue alternative funding sources,” the rating agency said. “These include offshore bond issuance, which picked up in the first half.”
Fitch expects further foreign-currency issuance in the second half, based on the potential issuance pipeline for the coming months.
US dollar bonds issued by Chinese and Indian NBFIs in the first half of 2024 were mostly three- to four-year paper. Fitch says this is partly because of the relatively high US dollar interest rate recently and expectations of future rate cuts.
The larger volume of issuance in the first half of 2024 and lower issuance in the past two years point to a significant pick-up in maturities in 2027 for both Chinese and Indian NBFIs. The size of the step-up in 2027 will increase if issuance remains strong in the second half, Fitch said.
“Our baseline assumption is that the 2027 maturity burden should remain manageable for Chinese and Indian NBFIs,” it said. “For example, redemptions in 2027 equate to less than 10% of end-2023 debt for all Fitch-rated Indian NBFIs.”
Amortising redemption structures introduced by some issuers will also smooth principal repayments over a period of one to two years before the final maturity, limiting the cliff risk, it said.
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