Informist, Monday, Jun 10, 2024
By Abhinaba Saha
MUMBAI – After a slow April, fundraising through private placement of corporate bonds surged in May as issuers, especially non-banking finance companies, tapped the primary market to take advantage of a fall in borrowing costs, industry players said.
Non-bank lenders and public-sector companies raised nearly 730 bln rupees through the placement of 244 bonds, up 92% from 380.28 bln rupees raised in April, according to data compiled by Informist. In May 2023, issuers raised around 875 bln rupees through 238 bond issuances.
The jump in fundraising last month is also on account of the statistical effect of a low base, given that corporate bond supply tends to fall in April as companies chart out borrowing plans for the new financial year, merchant bankers said.
"Yields softened during the month, which is why a lot of NBFCs (non-banking finance companies) came to the market with shorter-tenure bonds," Ajay Manglunia, managing director and head – institutional fixed income at JM Financial, said.
Yields on corporate bonds issued by the National Bank for Agriculture and Rural Development--considered a benchmark in the corporate bond market--maturing in three and five years fell 7-8 basis points in May, while those maturing in 10 years fell 3 bps. This followed a decline in 10-year benchmark government bond yields, which were down 11 bps in May.
Bond yields across the board fell last month on hopes of a lower supply of government securities following a higher-than-expected surplus transfer from the Reserve Bank of India to the central government for 2023-24 (Apr-Mar). Macroeconomic data in support of a possible rate cut in the US by September also dragged yields down, market participants said. This was despite liquidity in the banking system being in a deficit, on average, of over 1 trln rupees throughout the month.
With the RBI taking its time before lowering interest rates, the fall in yields last month presented an opportunity for corporate borrowers who had been waiting for the cost of funds to cool, dealers said. The central bank, which has been maintaining status quo on rates since April 2023, is widely expected to stay its hand at least until its policy review in October.
On a year-on-year basis, fundraising through corporate bonds fell 17% due to the absence of a big-ticket issuer, Housing Development Finance Corp, which merged into HDFC Bank last year, market participants said. Ahead of the merger, HDFC went on a borrowing spree, which augmented the corporate fundraising in the debt market. In May 2023, the housing financier raised 216.4 bln through corporate bonds, accounting for 25% of the total fundraising that month.
According to merchant bankers, strong demand from general insurance companies, pension funds, and corporations provided comfort to non-banking finance companies, whose business model depends heavily on borrowed capital, to tap the primary market. Last month, financial institutions accounted for 60% of total borrowing.
"This time, incremental demand from mutual funds was low as they did not receive enough fresh inflows into their longer-tenure schemes,” a debt capital market associate at a large private bank said. “The majority of the demand for corporate bonds last month came from insurance companies and pension funds who wanted to lock in current rates ahead of rate cuts."
Non-banking finance companies and housing finance companies raised 367.38 bln rupees through corporate bonds in May. Bajaj Finance was the largest issuer, raising 112.64 bln rupees through six bonds, followed by HDB Financial Services, which borrowed 25.75 bln rupees through two papers. Other key non-bank lenders such as Cholamandalam Investment and Finance Co, Kotak Mahindra Prime, Muthoot Finance, and Sundaram Finance also tapped the debt market last month.
Amongst home financiers, Bajaj Housing Finance raised 50 bln rupees through three bonds and LIC Housing Finance raised 21.05 bln rupees through a five-year bond issue.
State-owned entities--the most frequent issuers in the bond market--accounted for only around 40% of total borrowing in May. "The larger volume (of corporate bond issuances) comes from PSUs (public-sector undertakings) as they borrow large amounts from the market. They slowed down their longer-tenure borrowings on expectations of rates coming down in the future," Manglunia said.
Among public-sector companies, REC was the largest issuer, raising a total of 91.15 bln rupees through four issuances. NABARD was a distant second, borrowing 45.58 bln rupees through one bond. NHB raised 40 bln rupees through a single bond issuance.
Power Finance Corp raised 31.78 bln rupees through long-term bonds and Housing and Urban Development Corp raised 19.36 bln rupees through medium-term bonds.
Last month also saw bond offerings by Vedanta Semiconductors and Mindspace Business Parks REIT, which raised 25 bln rupees and 5 bln rupees, respectively, through short-term paper. End
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Informist, Monday, Jun 10, 2024
By Abhinaba Saha
MUMBAI – After a slow April, fundraising through private placement of corporate bonds surged in May as issuers, especially non-banking finance companies, tapped the primary market to take advantage of a fall in borrowing costs, industry players said.
Non-bank lenders and public-sector companies raised nearly 730 bln rupees through the placement of 244 bonds, up 92% from 380.28 bln rupees raised in April, according to data compiled by Informist. In May 2023, issuers raised around 875 bln rupees through 238 bond issuances.
The jump in fundraising last month is also on account of the statistical effect of a low base, given that corporate bond supply tends to fall in April as companies chart out borrowing plans for the new financial year, merchant bankers said.
"Yields softened during the month, which is why a lot of NBFCs (non-banking finance companies) came to the market with shorter-tenure bonds," Ajay Manglunia, managing director and head – institutional fixed income at JM Financial, said.
Yields on corporate bonds issued by the National Bank for Agriculture and Rural Development--considered a benchmark in the corporate bond market--maturing in three and five years fell 7-8 basis points in May, while those maturing in 10 years fell 3 bps. This followed a decline in 10-year benchmark government bond yields, which were down 11 bps in May.
Bond yields across the board fell last month on hopes of a lower supply of government securities following a higher-than-expected surplus transfer from the Reserve Bank of India to the central government for 2023-24 (Apr-Mar). Macroeconomic data in support of a possible rate cut in the US by September also dragged yields down, market participants said. This was despite liquidity in the banking system being in a deficit, on average, of over 1 trln rupees throughout the month.
With the RBI taking its time before lowering interest rates, the fall in yields last month presented an opportunity for corporate borrowers who had been waiting for the cost of funds to cool, dealers said. The central bank, which has been maintaining status quo on rates since April 2023, is widely expected to stay its hand at least until its policy review in October.
On a year-on-year basis, fundraising through corporate bonds fell 17% due to the absence of a big-ticket issuer, Housing Development Finance Corp, which merged into HDFC Bank last year, market participants said. Ahead of the merger, HDFC went on a borrowing spree, which augmented the corporate fundraising in the debt market. In May 2023, the housing financier raised 216.4 bln through corporate bonds, accounting for 25% of the total fundraising that month.
According to merchant bankers, strong demand from general insurance companies, pension funds, and corporations provided comfort to non-banking finance companies, whose business model depends heavily on borrowed capital, to tap the primary market. Last month, financial institutions accounted for 60% of total borrowing.
"This time, incremental demand from mutual funds was low as they did not receive enough fresh inflows into their longer-tenure schemes,” a debt capital market associate at a large private bank said. “The majority of the demand for corporate bonds last month came from insurance companies and pension funds who wanted to lock in current rates ahead of rate cuts."
Non-banking finance companies and housing finance companies raised 367.38 bln rupees through corporate bonds in May. Bajaj Finance was the largest issuer, raising 112.64 bln rupees through six bonds, followed by HDB Financial Services, which borrowed 25.75 bln rupees through two papers. Other key non-bank lenders such as Cholamandalam Investment and Finance Co, Kotak Mahindra Prime, Muthoot Finance, and Sundaram Finance also tapped the debt market last month.
Amongst home financiers, Bajaj Housing Finance raised 50 bln rupees through three bonds and LIC Housing Finance raised 21.05 bln rupees through a five-year bond issue.
State-owned entities--the most frequent issuers in the bond market--accounted for only around 40% of total borrowing in May. "The larger volume (of corporate bond issuances) comes from PSUs (public-sector undertakings) as they borrow large amounts from the market. They slowed down their longer-tenure borrowings on expectations of rates coming down in the future," Manglunia said.
Among public-sector companies, REC was the largest issuer, raising a total of 91.15 bln rupees through four issuances. NABARD was a distant second, borrowing 45.58 bln rupees through one bond. NHB raised 40 bln rupees through a single bond issuance.
Power Finance Corp raised 31.78 bln rupees through long-term bonds and Housing and Urban Development Corp raised 19.36 bln rupees through medium-term bonds.
Last month also saw bond offerings by Vedanta Semiconductors and Mindspace Business Parks REIT, which raised 25 bln rupees and 5 bln rupees, respectively, through short-term paper. End
Informist Media Tel +91 (22) 6985-4000
Send comments to feedback@informistmedia.com
© Informist Media Pvt. Ltd. 2024. All rights reserved.