Corporate debt-banks are lining up bond issues ahead of a looming cash crunch in the banking system this week and to boost their balance sheets as the financial year comes to a close.
Quarterly tax payments of an estimated Rs30,000 crore and fresh bond sales this week are expected to push overnight rates higher and make borrowing more expensive for companies.
“Some bank bond issues are already in the market and some more are there in the pipeline. The current issuance rush is the typical fund raising activity of banks towards the end of the year,” said Nirav Dalal, director, debt capital markets, YES Bank.
State Bank of Saurashtra opened a Rs225 crore issue last week and mortgagefinance company HousingDevelopment Finance Corp. (HDFC) raised a similar amount.
According to bankers, the State Bank of India (SBI) raised Rs1,000 crore through private placement of bonds with a state-run insurer. Power Finance Corporation Ltd (PFC) is expected to launch a Rs1,000 crores bond issue shortly.
The Industrial Development Bank of India (IDBI) on Monday raised Rs400 crore through a one-year certificate of deposit (CD) at 10.63%.
“There is a big question mark on the liquidity front at the moment. Moreover, banks want to beef up their balance sheet size hence the frenzy for funds,” said a seniorbanker at a foreign bank.
Ten states will raise a total of Rs2,284 crore by issuing 10-year bonds on Tuesday. The central bank will sell Rs2,000 crore worth of marketstabilization bonds on Wednesday.
The yield on Reuters’ benchmark 5-year corporate paper was at 9.65% on Tuesday,unchanged from the previous close.
The spread between the five-year corporate paper and government debt was at 165 basis points, wider from 160 basis points a week ago.
“The coming week would be crucial for inter-bank liquidity testing the advance tax outflows,” said Derivium Capital in a note on Monday.