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Informist, Wednesday, Nov. 13, 2024

 

By Sachi Pandey

 

MUMBAI – Fundraising through private placements of corporate bonds in October took a significant hit, as major issuers opted to hold off during the festive season and had already secured funding earlier in the year. This led to a drop of over 36% in bond issuances from a month ago.

 

Corporates, financial institutions, and state-owned entities raised INR 761 billion across 249 bond offerings last month, down from INR 1.19 trillion in September, according to data from the National Securities Depository Ltd and Informist. But year-on-year, funds raised through corporate bonds surged 87% in October, compared with INR 405 billion in the same month year ago.

 

"The slowdown wasn't surprising," said Soumyajit Niyogi, director at India Ratings and Research. "Many corporates tapped the market heavily in August and September ahead of the festive season. That way borrowers had borrowed well in advance, hence incremental requirement for borrowing in October was not much."

 

In the initial part of the month, issuances were slow because of confusion over certain regulatory changes. On Sept. 18, SEBI issued amendments to corporate debt issuance regulations. The regulations were interpreted initially as requiring board approval for every individual bond issue, whether through private placement or public offer. This added complexity to the fundraising process. On Oct 10, SEBI clarified that stating that the amendments did not mandate prior board approval for each term-sheet, but only required a review by the board. In the interim, the misunderstanding prompted many companies to halt fundraising, which weighed on the overall volume of issuances. 

 

"In October, the market largely adopted a "wait-and-watch" stance due to multiple reasons: like Board has to updated on complexity & interpretation of SEBI bond issue notification and most of them prefer to update in regular board meeting, comparative less board meetings in October due to limited working days during the festive season plus RBI (Reserve Bank of India) policy was there in October and US Fed policy & election results in November, so everyone was anticipating on these data points & refrained from taking immediate decisions during month end festival season," Umesh Khandelwal, Chief Business Officer at Tipsons Group told Informist. 

 

The primary as well as secondary market was lacklustre last month also due to uncertainty regarding the near-term course of interest rates, dealers said. The Reserve Bank of India held its fourth bi-monthly monetary policy meeting in early October, maintaining the repo rate at 6.50% but shifting its stance from "withdrawal of accommodation" to "neutral" after over two years. However, traders were not sure if this sealed the case for a rate cut in December. Moreover, there was much uncertainty about the likely pace of interest rate cuts in the US, especially as the world’s largest economy was heading into elections.

 

"Market participants were not really looking for cues from US policy or elections. They were just cautious about what if something unexpected happens which led to a sluggish overall demand. The market over here (India) is more or less stable and will remain so till we see action from the RBI side on the rate cuts period," a senior official at a large sized brokerage firm said. 

 

Issuance among public sector entities dropped by 26% to INR 229.22 billion in October from INR 308.42 billion in September. NABARD was the largest public sector issuer, raising INR 70 billion through bonds maturing in February 2028. Small Industries Development Bank of India was the second biggest, securing INR 59.22 billion with April 2028 bonds. REC and Power Grid Corp. issued INR 50 billion each via 10-year bonds. 

 

While several factors kept big-ticket PSUs at bay, non-banking financial companies and other corporates in need of funds tapped the debt market. Non-banking financial companies raised INR 168.51 billion in October, down from INR 187.98 billion in September. Mankind Pharma was among the prominent issuers, raising INR 50 billion through three bond offerings, while Adani Airport Holdings raised INR 19.5 billion via Sept. 2028 bonds. Bajaj Finance, too, raised INR 28.84 billion through six bond offerings, making it one of the active corporate issuers for the month.

 

Banks and housing finance companies mostly refrained from major issuances last month, with the notable exception of the State Bank of India. The country’s largest lender tapped the bond market with its first perpetual bond offering for the current financial year and raised INR 50 billion at a coupon of 7.98%. October also witnessed the first Municipal bond of the financial year by Rajkot Municipal Corp, which raised INR 1 billion at a coupon of 7.90% through its staggered redemption bonds. 

 

Last month, over 55% of the bonds issued had shorter maturities, with most slated to mature between 2025 and 2029. This focus on shorter duration debt was owing to the uncertainty surrounding liquidity conditions and long-term interest rates, dealers said. "Short-term debt offered a level of comfort to issuers because there are rate cut uncertainties in the market right now. And it's easier to predict volatility in the shorter tenure segment than the longer tenure, the senior official at a large-sized brokerage firm said. 

 

Looking forward, market participants expect the corporate bond market to continue its cautious approach at least till the Reserve Bank of India's monetary policy meeting in December.  End

 

Edited by Vidhi Verma

 

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