Informist, Monday, Aug 19, 2024
By Sachi Pandey
MUMBAI – After a sluggish first quarter, fundraising through the private placement of corporate bonds saw a significant uptick in July. State-owned banks and public sector entities led the charge, taking advantage of falling borrowing costs, according to industry experts.
According to data compiled by Informist and sourced from the National Securities Depository, corporations and financial institutions in July raised around 998 bln rupees by privately placing 260 bonds, compared with 663 bln rupees raised in June through 247 bond issuances.
"Yields dropped notably in July, influenced by the impact of index inclusion and a fall in G-sec (government securities) yields. As the underlying G-sec curve came off, yields on corporate bonds also began to fall. This provided issuers with a good opportunity to enter the market and secure funding at lower costs," said Rajeev Pawar, treasury head at Ujjivan Small Finance Bank.
Yields on three- and five-year corporate bonds issued by the National Bank for Agriculture and Rural Development -- a benchmark for the corporate bond market -- fell 10-12 basis points, while yields on 10-year papers declined 3 bps in July. This mirrored the drop in 10-year government bond yields, which fell by 8.5 bps during the same period.
Bond yields fell across the board last month, tracking the movement of government securities, which mirrored US Treasury yields. The surplus liquidity in the banking system in India and US data in support of a possible rate cut by the Federal Reserve in September also dragged yields down, market participants said. The positive sentiment around potential rate cuts in both India and the US led investors locking up the current yield levels, dealers said.
The liquidity surplus in the banking system surged to 1.56 trln rupees at the end of July from 279.43 bln rupees in the previous month, data from the Reserve bank of India showed.
"People were waiting for more clarity and easier liquidity," said Laukik Bagwe, fixed income vice president at DSP Mutual Fund. "From July onwards, systemic liquidity improved significantly, and G-secs yields have moved down by around 10-15 bps which provided comfort. So, with the rally in G-secs, corporate bond spreads became very attractive for both issuers and investors."
The full Budget for the current financial year, presented on Jul 23, further improved the sentiment. The Budget brought more clarity, particularly with a larger-than-expected downward revision in the fiscal deficit target and a slight reduction in market borrowing.
The full Budget projected the fiscal deficit in 2024-25 at 4.9% of GDP, down from 5.1% projected in the Interim Budget. The government's gross borrowing for the year was also revised to 14.01 trln rupees, lower than the interim estimate of 14.13 trln rupees.
Of the total funds raised through corporate bonds in July, public sector companies raised 283 bln rupees and banks raised 280 bln rupees.
State Bank of India and Canara Bank were the largest issuers during the month, each raising 100 bln rupees through infrastructure bonds with maturities of 15 and 10 years, respectively.
Among public sector entities, REC was the biggest issuer, raising 60 bln rupees through two bonds, followed by NABARD and National Bank and National Bank for Financing Infrastructure and Development, each raising 50 bln rupees.
Year-on-year, fundraising through corporate bonds jumped up almost threefold. In July 2023, issuers had raised 344 bln rupees through 272 bond issuances.
"In 2023, the April-June quarter saw a massive supply of bonds, but this year, the situation was different," Bagwe said. "The systemic liquidity is strong, and the rate hike cycle is over. Now, we're waiting for rate cuts to begin. Spreads on corporate bonds are also attractive for investment."
Non-bank lenders also had a strong presence in July, raising nearly 173 bln rupees. Bajaj Finance raised 66 bln rupees through six bonds, followed by Cholamandalam Investment and Finance Co with 31 bln rupees raised through two bond issuances.
Housing finance companies continued to hit the bond market, with Bajaj Housing Finance raising 40 bln rupees through two bonds. LIC Housing Finance also tapped the market to raise 20 bln rupees through three bonds of different maturities.
Last month also saw Drone Acharya Services raising 2.85 bln rupees at a coupon of 21%. End
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