Corporate Debt | Issuance slowdown on rash government borrowing

Corporate Debt | Issuance slowdown on rash government borrowing

Mumbai: The primary market is expected to see thin issuances this week as credit became expensive for private companies after the government increased the bond sale target for the fiscal year.

The government on Thursday said it will borrow 2.2 trillion ($44.5 billion) between October and March, significantly higher than the budgeted 1.67 trillion rupees.

“The market sentiment is poor," said Kaustubh Kulkarni, director capital markets, Standard Chartered Bank. “Levels (corporate bond yields) have adjusted higher by 15 to 20 basis points, so it will be difficult for issuers to digest," Kulkarni said.

The benchmark five-year bond yield rose 4 basis points to 9.53% on Thursday and the 10-year corporate bond yields rose 5 basis points to 9.55%.

“Yields (corporate bond) will go up further by 10 basis points at least once the supply starts hitting the market," a senior dealer with a foreign bank said.

The government is scheduled to sell 150 billion of bonds this week, according to the auction calendar.

Indian state-run lender Rural Electrification Corp (REC) is likely to revisit the market this week or the next to borrow around 20 billion, a company source told the news agency.

The company is still finalizing the tenures and watching the market, the source said.

India’s national airline Air India Ltd (AIL) has raised 55 billion via bonds in two tenures, a source with knowledge of the deal told the news agency. The company raised funds via 15 year bonds at 9.84% and 20-year bonds at 10.05%, the source said.

Export Import Bank of India (Exim Bank) plans to raise at least 4 billion through 3-year bonds at 9.40%, two sources with knowledge of the matter told the news agency on Monday.

Issuances will only be to the extent of their cash requirements, traders said, adding that the issuances will pick-up after foreign institutional investor (FII) limits are auctioned.

The Securities and Exchange Board of India (SEBI), the capital market regulator, on Friday said the bidding for foreign institutional investors’ (FII) investment limit of $5 billion in corporate infrastructure debt will be conducted on 7 October.

The regulator said no single entity will be allocated more than 20 billion of the investment limit and the minimum amount which can be bid for is 500 million.

“The deterrent to inflows in the infra corporate bonds was the lock-in of 3 years. With the implementation of suggested changes and clarification of put/call option we should expect the demand to increase for such securities," a senior trader from a foreign bank said.

For the purpose of calculating residual maturity, in case of bonds that have embedded options, the date of the put/call options shall be determined as the maturity date, the circular clarified.

The spread between the five-year corporate bond and government bond was 94.01 points on Thursday, from 97.99 basis points on Wednesday. The spread between the 10-year corporate bond and government bond at 91.56 basis points, on Thursday, from 96.04 basis points, at its previous close.