India Inc fund raising: As yields soften, India Inc rushes in to issue papers

Indian companies lined up bonds worth Rs 42,271 crore for issue in the local market in just about a week after the Reserve Bank of India said it would infuse Rs 1 lakh crore through longterm repo operation (LTRO), pulling yields down.

The amount was double of the Rs 21,307 crore they raised in the one week before the RBI’s February 6 announcement, show data compiled by JM Financial Research, as companies rushed to take benefit of the fall in cost of funds.

Companies usually take a few days after such announcements to issue bonds, as these deals are cut on the exchange bidding platform where they need to comply with certain regulations.

L&T Infrastructure, Tata Motors, Bharti Airtel, HDFC, HDB Financial, ICICI Bank, Shriram Transport, National Highways Authority of India and Power Finance Corp have already sold bonds during the period, with an extension in some cases amid dropping yields, said market participants. The companies could not be contacted immediately for comment.

“Interest rate transmission has improved in markets with the latest RBI policy bringing in LTRO, which has created demand for shorter-duration (three- and four-year) papers and brought rates sharply down,” said Shameek Ray, head of debt capital market at ICICI Securities Primary Dealership.

“This has increased investor inflows into debt markets. Many more issuers are now planning to tap bond markets,” he said. “This is an encouraging sign as better traction in debt capital markets will be a strong support for growth of the economy.”

The RBI, while announcing its monetary policy, said it would conduct LTRO whereby it would inject money into the banking system at the policy repurchase rate of 5.15% for one and three years. It has now begun the exercise. Market participants need to pledge government securities to avail of the benefit.

The excess supply of funds has pulled rates on four-year and threeyear sovereign bonds down 28-37 basis points amid rising investor appetite since February 5. During the same period, the yield on 10-year benchmark paper fell about 10 basis points.

“Although the RBI did not cut rate in its February policy, the announcement of LTRO has lifted investor sentiment with many issuers rushing to tap surplus liquidity,” said Ajay Manglunia, managing director–fixed income, JM Financial. “Companies are mainly going for shorter-duration money as yields dropped the most in that segment.”

The spread, or yield differential between a top-rated PSU and private corporate bonds, has narrowed to 50 basis points in the twoand three-year segments, compared with 60-70 basis points earlier in the calendar year, dealers said.

“With not much credit demand, there is also a bit desperation to deploy money,” Aditya Birla Sun Life Mutual fund CEO A Balasubramanian said. “The bond market is gradually turning into a risk-on mode. Market rates are now almost aligned to the policy rate as surplus liquidity is adding to the scene.”

The banking system is sloshing in liquidity with excess cash of Rs 2-3 lakh crore.

“Investors are looking for trading gains as they subscribed to those debt papers,” said Ritesh Bhusari, deputy general manager-treasury, South Indian Bank. “Foreign portfolio investors are also showing good interest to own shorter-duration papers as they face negative to soft interest rates globally.”