Low yields spur more private firms to access bond market
As many as 424 companies raised Rs.1.94 trillion through bond sales in first nine months of fiscal 2016
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Mumbai: Low yields are prompting more and more companies to raise money from the corporate bond market instead of approaching banks for loans.
As many as 424 companies raised Rs.1.94 trillion through bond sales in the first nine months of fiscal 2016, according to Prime Database. That compares with 273 companies that accessed the market to raise Rs.1.6 trillion in the whole of fiscal 2016.
Corporate entities made up 56% of the total Rs.3.44 trillion raised from the bond market in April-December, their share rising from 36% in fiscal 2015.
Other bond issuers include Housing Development Finance Corp. Ltd, LIC Housing Finance and non-banking financial companies that typically make up a lion’s share of money raised from the bond market.
As banks battling a pile-up of bad loans turn risk-averse and rein in lending, corporate entities see clear benefits in borrowing from the bond market.
Bank loan disbursal between April and December amounted to just Rs.2.04 trillion.
Amid stubbornly high bank base rates, falling bond yields have been attracting companies to the bond market over the last two years.
The yield on AAA-rated short-term corporate bond with tenures between two and five years fell by as much as 25 basis points between April and December while that on the 10-year corporate bond eased by 5 bps. One basis point is one-hundredth of a percentage point.
The best yield that a highly rated issuer paid was 8.3% on a three-year tenure which is 100 bps lower than the lowest base rate of 9.3% in the banking industry.
Bond yields have since then risen by at least 20 bps but are still below 9.3%.
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