India Corporate Bonds:PFC, REC ylds up on fears of rating downgrade

Thursday, Dec 13

    By Bhakti Tambe
    MUMBAI – Yields on bonds of Power Finance Corp and REC Ltd rose over 15 basis points, even as those on other papers were flat, as fund houses sold these papers owing to concerns of a rating downgrade.
    PFC is buying government’s 52.6% stake in REC. Post this, the transaction is expected to result in weak capital ratios of these lenders, according to Moody’s Investors Services. Noting this, it has placed PFC and REC’s Baa3 rating and credit profiles on review for downgrade.
    “Fund houses turned risk-averse as there is a lot of uncertainty over PFC-REC deal. We are cutting our exposure to these papers in the longer maturity segment and selling off shorter tenure papers,” a fund manager with a mid-sized fund house said.
    Investors turned risk-averse and sold papers of both the companies across maturities. This large-scale selling by a few fund houses and select insurance companies pushed yields high.
    REC’s 8.56%, 2028 bond today traded at a yield of 8.60% today, at least 20 basis points higher as compared to Wednesday’s deals.
    Both PFC and REC are regular issuers of AAA-rated bonds, which are seen as proxy for sovereign, and hence their pricing serves as benchmark for other papers, dealers said. Any impact on their yields can potentially lead to costlier borrowing for other issuers.
    A large public sector bank said to have actively bought these papers today. 
    “Given that both of these are state-owned organisations, there is a very little chance of default or of the rating downgrade. But some investors are cautious while others are seizing the opportunity to buy AAA-rated papers at an attractive prices,” a dealer with a mid-sized insurance company said.
    The National Stock Exchange reported deals aggregating 58.87 bln rupees, compared with 60.73 bln rupees on Wednesday. The BSE recorded deals worth 35.15 bln rupees, against 36.31 bln rupees the previous trading day.

    In the secondary market, about 2.2 bln rupees of Ujwal DISCOM Assurance Yojana bonds were traded at a weighted average yield of 6.95-7.92%, according to data available on the Reserve Bank of India’s Negotiated Dealing System-Order Matching System.

* 1.95 bln rupees of Rajasthan’s 2019-2022 bonds were traded at 6.95-7.92% yield
* 250 mln rupees of Maharashtra’s 2022 bonds were traded at 7.85% yield















Edited by Maheswaran Parameswaran

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