Rising interest rates in the US will make it more expensive for companies to issue dollar bonds

Mumbai: As a result of the aggressive interest rate hike exercise by the American Federal Reserve, Indian companies have to refrain from raising money in the form of dollars through bonds from the primary markets in the current financial year. According to a research report, no Indian companies or banks have raised money in the form of dollars through bonds in the primary market so far in the current financial year. The cost of refinancing for companies has also increased as the dollar becomes more expensive.

In the financial year 2021, Indian companies and banks raised 898.50 million dollars while in the financial year 2022, 1337 million dollars were raised. Interest rates in the US were at historic lows in these two financial years, making it cheaper for companies to issue bonds denominated in dollars.

Now that the dollar has become expensive, refinancing will prove to be costly for companies that previously raised money in dollar form and did not do hedging to repay the bonds, said the research report.

Companies may be forced to buy dollars in the secondary market to pay off bonds, as the US Federal Reserve raises interest rates and the dollar becomes more expensive. The Federal Reserve has raised interest rates by up to three percent this year.

A dollar bond is a security denominated in US dollars in which principal and interest are payable in US dollars. With the rise in the value of the dollar, raising money from the market through dollar bonds proves to be expensive.

In the current situation, it is the turn of both the investors and the filling companies to reassess their plans. With the dollar becoming expensive, Indian companies will now have to turn to issuing local currencies, i.e. rupee bonds.