Informist, Wednesday, Sep 11, 2024

By Sachi Pandey

MUMBAI – Companies eased up on raising funds in August after a hectic July, with the money borrowed through private placement of corporate bonds falling 18% as issuers shifted to alternative funding options, including short-term debt instruments. On a year-on-year basis, fundraising through corporate bonds was up 34% last month.

"Since the short-term rates have improved because of the better liquidity scenario, CP issuances by NBFCs (non-banking financial companies) and by corporates have gone up quite substantially. That affected the overall amount in corporate bonds. So, possibly for the time being, they (companies and financial institutions) are accessing that (short-term debt) market, but I am sure with the strong AUM (assets under management) growth, financial institutions will come back to the bond market soon," Soumyajit Niyogi, director – Core Analytical Group at India Ratings and Research, said.

In August, companies raised 814 bln rupees through corporate bonds, down from 998 bln rupees in July. However, the number of bond issuances in both months was largely the same at 263 in August and 260 in July, according to data sourced from the National Securities Depository and compiled by Informist. In August 2023, 606 bln rupees was raised through 273 bond issuances.

While the amount raised through bonds was lower in August, issuances of short-term debt instruments were up 22% from the previous month as rates on three-month debt instruments fell 10-20 basis points.

August saw the first tier-I bond issue of 2024-25 by Canara Bank, which raised 30 bln rupees at 8.27%. The coupon on the bond, which was fully subscribed and has a call option at the end of five years from the date of allotment, was 138 bps higher than the annualised yield on the five-year benchmark government bond.

State Bank of India, the country's largest lender, also tapped the market in August via tier-II bonds and raised 75 bln rupees through bonds maturing in 15 years at 7.42%. Bank of Baroda and Bank of Maharasthra were also active and raised money through infrastructure bonds.

The reduced overall fundraising in August was driven by limited issuances by public sector entities, although REC mopped up 68 bln rupees through three bond offerings. Meanwhile, National Bank for Financing Infrastructure and Development raised 39 bln rupees through 20-year bonds at a coupon of 7.36, while National Bank for Agriculture and Rural Development raised 50 bln rupees through bonds maturing in Dec 2029 at 7.5185%.

Fundraising by corporates dropped to 117 bln rupees in August from 177 bln rupees in July. Bajaj Finance was the leader among non-bank lenders, raising 23 bln rupees through three short-term offerings. India Infradebt, SMFG India Credit Co, and Tata Chemicals were the other big issuers.

Of the total amount raised in August, housing finance companies accounted for just over 22 bln rupees, or 2.7%, with LIC Housing Finance alone responsible for nearly half the sum. Yields on bonds issued by NABARD, considered a benchmark, declined by 1-3 bps tracking a 5-bps fall in gilt yields.

"The bond market is currently seeking better clarity over the policy rate. Sentiment is constructive, with expectations leaning towards an eventual rate cut. However, the timing remains uncertain. Also, there is a strong belief that any potential rate cut will be moderate, not sharp. So this anticipation has already been factored into current market pricing. That is why bond yields haven't moved lower despite some market fluctuations," Niyogi said.

The US Federal Reserve's next rate decision is due on Sep 18. With officials from the central bank, including Chair Jerome Powell, indicating in recent weeks that the time for interest rate cuts is approaching. Prices of Fed Funds futures suggest there is a 67% chance of US interest rates being cut by 25 bps this month to 5.00-5.25%, as per the CME Group. End

Edited by Aditya Sakorkar

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