INDIA: An Introduction to Capital Markets (International Firms)

India Capital Markets: Key Themes 

2023 was a challenging year for Asian capital markets, with significant market volatility and uncertainty. However, amidst difficult conditions, new trends and opportunities emerged as market participants responded to higher global interest rates and shifting market expectations. In this environment, issuers sought alternatives to debt financings, such as equity and private credit. We also saw a significant uptick in liability management exercises. A few observations and trends for 2024 are set out below.

Continued Pipeline of Equity and Private Debt Offerings

With higher interest rates globally, issuers looked for alternatives to public debt capital markets financings, such as raising equity or through private credit. In particular, the Indian stock markets remained buoyant, with a strong pipeline of IPOs and other secondary equity offerings.

We saw robust initial public offering (IPO) demand in India. In particular, high-profile companies such as JSW Infrastructure (India’s second largest commercial port operator, with its listing being one of the largest in India this year (advised by Linklaters)) and ASK Automotive completed their listings.

There was also significant activity in follow-on equity offerings, notably by Bajaj Finance and RHI Magnesita. Other potential “unicorn” issuers, such as Brainbees (First Cry) and Ola Electric, submitted draft prospectuses to the regulator towards the end of 2023, eyeing a 2024 listing – all of which were advised by Linklaters. We also saw a wave of private credit financings by Indian issuers, offering highly structured and complex financing solutions and a real source of alternative liquidity while public debt capital markets remained shut.

Elsewhere in Asia, a similar trend has been observed. For example, in the first half of 2023, Indonesia ranked fourth globally in terms of IPO capital raised, behind only China, the United States and the United Arab Emirates. Driven by extensive deposits of natural resources needed to make electric vehicle batteries (and therefore critical to the green transition), in 2023 the Indonesian natural resources sector saw the IPOs of PT Merdeka Battery Materials (which Linklaters advised), Harita Nickel and Ammann Mineral International (among others).

Thailand also demonstrated resilience in its IPO markets, boasting four of the top ten largest listings in Southeast Asia in the third quarter of 2023. The Malaysia Stock Exchange ended the year with more than two dozen new listings, further supported by the Prime Minister’s public commitment to supporting regulatory changes to expedite the Malaysian IPO process and bolster the country’s attractiveness for listings.

Significant Increase in Liability Management Exercises

Against the challenging market backdrop and high interest rate environment, issuers have had to find alternatives to pursuing new money deals in the international capital markets, to refinance their existing debts.

Linklaters acted on numerous liability management exercises for issuers, including tender offers for (among others) Adani Ports, Adani Electricity, GMR Hyderabad International Airport, Delhi International Airport and Muthoot Finance, as well as consent solicitations for Azure and Vedanta.

Some of these liability management exercises can be extremely complicated and subject to intensive negotiations with various sophisticated groups of bondholders, leading to extensive changes to fundamental economic terms such as extending maturities, increasing interest rates, and adding security and guarantees.

Strong Demand for ESG Bonds 

There is increasing focus on Asia as key to decarbonising the global economy, with governments setting national climate targets and signalling significant policy shifts. As a result, one observation is that sovereigns, supranationals, agencies and some corporates are increasingly issuing environmental, social and governance (ESG) bonds to drive such policy initiatives. For example, the Export-Import Bank of India, REC Limited and Continuum issued ESG bonds against tough market headwinds.

Outlook for 2024 

Although the macroeconomic environment in 2024 remains uncertain owing to global elections and geopolitical conflicts, market sentiment is starting to turn. For example, issuers such as the State Bank of India and Shriram Finance have already tapped the public debt capital markets in early 2024.

Investors also seem to be factoring in stability and status quo with respect to the elections in India, which is being reflected in more conducive market conditions for capital raisings. Combined with receding inflationary concerns, expected interest rate cuts and resilient equity valuations, debt and equity capital markets seem poised to rebound from the slowdown of the last 18 months.