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Informist, Tuesday, Jul 16, 2024

 

By Subhana Shaikh

 

MUMBAI – Private placements of corporate bonds declined marginally in June from the previous month as moderation in credit growth--a barometer of economic activity--and uncertainty about the policies of a new coalition government resulted in issuers adopting a wait-and-watch approach to fresh fundraising, merchant bankers believe.

 

Corporations and financial institutions raised 663 bln rupees in June through 247 bond offerings, down 9% from 730 bln rupees raised in May, according to data compiled by Informist. Year-on-year, fundraising through corporate bonds halved owing to the absence of big-ticket issuer Housing Development Finance Corp, which merged with HDFC Bank last year, market participants said. In June 2023, issuers had raised 1.39 trln rupees through 230 bond issuances.

 

"The fall in issuances in June, primarily from an NBFC (non-banking finance company) point of view, happened because June was the month when a lot of banks came up with a lot of term loan sanctions," said Anirudh Muchhal, head of markets at Aditya Birla Finance. "You end up growing from the bank borrowing side, right? So a lot of NBFCs ended up doing that."

 

Muchhal said business "obviously" did not grow as much as it had last year or the year before that. "There is some moderation in credit growth," he said. "A little moderation has crept in and with committed drawdowns you had to do with the bank, I think that's why bond issuances came down."

 

Bank credit grew 17.4% on year to 168.81 trln rupees as of Jun 28, data from the Reserve Bank of India showed, recording a decline from 19.2% as of Jun 14. 

 

"Large corporate demand remains sluggish with hopes abounding for a revival amid rising capex (capital expenditure) across industrials, partly cannibalized by buoyant capital and private credit market," Emkay Global Financial Services said in a report.

 

Excluding the loans extended by the erstwhile HDFC, the total loans of scheduled commercial banks rose 13.9% on year as of Jun 28. A fortnight ago, the figure was 15.6% on year.

 

Companies went easy on borrowing as they waited for clarity on the policies of the new coalition government after the Bharatiya Janata Party failed to secure a simple majority in the Lok Sabha for the first time in a decade. Counting of votes cast in the seven-phase General Election held over two months took place on Jun 4. Though the results were declared early in June, uncertainty about which ministries would be handled by members of key allies Telugu Desam Party and Janata Dal (United) persisted much longer.

 

Issuances fell last month despite the slight decline in borrowing costs. Yields on corporate bonds issued by the National Bank for Agriculture and Rural Development declined 3-5 basis points across tenures, tracking a similar movement in government securities which saw strong buying from foreign portfolio investors.

 

Among state-owned entities, NABARD was the biggest issuer of corporate bonds, raising 50 bln rupees through paper maturing in December 2029. REC was second, borrowing 40 bln rupees through a July 2034 bond issue. National Housing Bank and Indian Railways Finance Corp raised 32 bln rupees and 30 bln rupees through a September 2027 bond and a 10-year paper, respectively.

 

Indian Renewable Energy Development Agency tapped the primary market twice last month, mopping up 25 bln rupees through two long-term bond offerings. Small Industries Development Bank of India, India Infrastructure Finance Co Ltd, and ONGC Petro additions were among other public-sector entities to raise funds through bonds.

 

Last month also featured the first infrastructure bond issue by a bank in 2024-25 (Apr-Mar), with State Bank of India raising 100 bln rupees through a 15-year infrastructure bond at a rate of interest of 7.36%.

 

Frequent issuer Bajaj Finance raised over 17 bln rupees through two short-term bonds. Muthoot Finance issued a five-year bond and mobilised 15 bln rupees, while Shriram Finance hit the market several times, raising 13 bln rupees. Cholamandalam Investment and Finance Co and Sundaram Finance borrowed a total of 19 bln rupees.

 

As usual, housing finance companies continued to hit the bond market, with LIC Housing Finance raising nearly 26 bln rupees through a three-year bond. Mahindra Rural Housing Finance, Tata Capital Housing Finance, and Aadhar Housing Finance raised a total of 10.5 bln rupees. 

 

From the private sector, GMR Energy issued 10-year paper raising 15 bln rupees, and pharmaceutical company Eris Lifesciences borrowed a total of 12.5 bln rupees through two papers.

 

India Infradebt mobilised funds worth 15 bln rupees through two issuances and Tata Power Renewable Energy borrowed 10 bln rupees through two bonds, one maturing in five years and another in 10 years.  End

 

Edited by Rajeev Pai

 

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