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Informist, Tuesday, Oct. 8, 2024

 

By Sachi Pandey

 

MUMBAI – Fundraising by companies through bonds on a private placement basis crossed INR 1 trillion for the first time in financial year 2024-25 (Apr-Mar) in September as corporate borrowers swooped in to benefit from a fall in the cost of borrowing and from strong investor demand, industry players said. Companies raised INR 1.19 trillion, a 77.13% jump from INR 675 billion in September 2023, data from National Securities Depository Ltd. and Informist showed.

On a monthly basis, fundraising rose 47% from INR 813.86 billion in August. Despite fewer issuances--256 compared to 264 in August--the total funds raised were higher, pushing the average bond issuance size up to INR 4.67 billion from INR 3.08 billion.

 

"The initial months saw limited primary bond issuances, but the pace is picking up now," said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP. "Bond issuers are gearing up to raise funds in the corporate bond market, and they are raising large sums because yields have significantly declined."

 

Yields on corporate bonds issued by National Bank for Agriculture and Rural Development maturing in three, five, and 10 years fell about 10-16 basis points in September owing to multiple factors, including a 50-basis-point rate cut by the US Federal Reserve, dealers said.

 

"The Fed rate cut was definitely a big factor in lowering yields, but there are many factors in play," said Pankaj Pathak, senior fixed income fund manager at Quantum Asset Management Co. Pvt. Ltd. "Easing domestic inflation, a favourable demand-supply balance... plus the RBI (Reserve Bank of India) is also expected to cut rates at some point, so, some bit of that is also already priced in the market. There are multiple global and domestic factors that pushed the yields down last month."

 

On Sept. 18, the US Federal Open Market Committee cut the federal funds target range by 50 basis points to 4.75-5.00%, surpassing market expectations of a 25 bps cut. In contrast, the RBI's Monetary Policy Committee is expected to keep the repo rate unchanged at 6.50% at its meeting currently underway, though there is growing anticipation of a shift in stance to "neutral".

 

In an Informist poll of 30 economists, treasury officials, and fund managers, all but one saw the rate-setting panel standing pat on rates next week, with nine respondents predicting that the committee may change its stance to "neutral" from "withdrawal of accommodation".

 

Positive market sentiment, combined with expectations of future rate cuts, led to increased demand for longer-tenure bonds in September. Issuers such as India Infrastructure Finance Co. Ltd., Power Finance Corp. Ltd., and Indian Renewable Energy Development Agency Ltd. responded to the demand with long-term bond offerings.

Offerings by state-owned entities remained strong in September. These entities raised INR 308.42 billion, accounting for 37% of the total fundraising. Public-sector companies also issued several short- to medium-term bonds worth INR 183.14 billion to meet their own and investors' requirements. 

 

Small Industries Development Bank of India was the largest borrower in September, raising INR 130 billion through two rounds of issuances. NABARD and Power Finance Corp. also raised significant sums of INR 53.14 billion and INR 94.68 billion, respectively.

 

Banks saw a surge in fundraising through corporate bonds, borrowing INR 239.25 billion in September, compared to INR 163.11 billion in August. State Bank of India led the pack, raising INR 75 billion through tier-II bonds. Bank of India also issued tier-II bonds. Axis Bank, Bank of Baroda, and Indian Bank raised funds through infrastructure bonds.

 

Non-banking finance companies and housing finance firms were active as well, with LIC Housing Finance raising INR 58.55 billion through three issuances and Shriram Finance Ltd. raising INR 48.71 billion via seven offerings.

 

September also saw offerings from various infrequent issuers, including Data Infrastructure Trust, Renew Solar Energy-Jharkhand Five, Khubchandani Hospitals, OE Business Park, and Indiabulls Commercial Credit.

 

While the market is riding a wave of optimism, Srinivasan cautioned, "This positive sentiment might be short-lived unless the RBI cuts rates. The future depends on the central bank's policy decisions and bond supply, as well as external factors like geopolitical tensions, US Treasury yield movements, crude oil price volatility, and the USD-INR exchange rate."  End

 

Edited by Rajeev Pai

 

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