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Photo: iStock
Photo: iStock

Corporates raise 2 trillion through bond market in Q1FY21

  • The bond issuance activity was at its peak during the first two months which saw corporates raise 1.47 trillion through these bonds
  • The quarter saw big ticket issuances by corporates such as Reliance Industries which raised 24,955 crore and Tata Group which raised 5700 crore

MUMBAI : Indian corporates raised over 2 trillion through issuance of rupee bonds in the first quarter of FY21 as companies made efforts to prepare their balance sheets to weather economic uncertainties in the coming quarters on account of the disruptions caused by the covid-19 pandemic.

Earnings for the quarter ended 31 March have painted a bleak picture of India Inc's financials, with net sales and profit, adjusted for one-time profit or loss, slumping to a 20-quarter low, Mint reported on Thursday.

With the nationwide lockdown lasting across most of the June quarter, most companies refrained from providing earnings guidance due to continued market uncertainties and have been focusing on aggressive cost-cutting measures and delaying capex to create liquidity buffers for later part of the fiscal.

India Inc's rush to raise liquidity pushed the bond market fundraising number for the June quarter significantly higher than last year. Typically the first quarter of the fiscal is a lean period. Last year corporates raised only 1.3 lakh crore in the June quarter.

The bond issuance activity was at its peak during the first two months which saw corporates raise 1.47 trillion through these bonds. Many AAA rated companies rushed to tap the market especially in April to take advantage of easy funds made available under the Reserve Bank of India's Targeted Long Term Repo Operations (TLTRO). The issuances for the month of June stood at 51,091 crore.

The quarter saw big ticket issuances by corporates such as Reliance Industries which raised 24,955 crore, Tata Group which raised 5700 crore and and L&T group which raised 11,851 crores. Corporates like Mahindra & Mahindra, Crompton Greaves Consumer Electricals and L&T group also raised funds through the corporate bond market this year.

While several corporates raised funds in the bond markets, the activity was largely dominated by high rated non-banking finance companies which tapped the domestic market to avail of the RBI's TLTRO.

Among the NBFCs, Rural Electrification Corporation Ltd (REC) raised 12853.5 crore, Housing Development finance corporation (HDFC) raised 15250 crore and Power Finance Corporation (PFC) raised nearly 23,000 crore through corporate bonds in the first quarter.

The quarter also saw new issuers like Patanjali Ayurved Ltd and Welspun Enterprises Ltd.

In March this year RBI introduced the TLTRO under which banks can access 3 year money upto 1 lakh crore to invest in corporate bonds papers. This was followed by another round of TLTRO to facilitate funding to small and medium sized non-banking finance companies. The move was aimed to help companies which are impacted by the covid-19 pandemic.

Banks were mandated to deploy these funds within 30 working days.

"The quarter was different due to ample liquidity. We saw a healthy level of activity in the corporate bond market despite the fact that government borrowing was also high. We expect the same trend to continue in the remaining quarters with wider participation," said Ajay Manglunia, head of institutional fixed income at JM Financial.

Banks were the largest investors in these papers, while mutual funds were cautious after the move to wind down the debt schemes of Franklin Templeton created redemption pressures on mutual funds.

"In Q1FY20, banks were active in deploying their surplus liquidity in a combination of AAA and non-AAA rated bonds through LTRO and TLTRO route. This has provided a section of non-AAA NBFC/HFC entities with liquidity on timely basis. Mutual funds, on the other hand, were focussed on deploying their inflows predominantly in AAA-rated bonds due to investor preference despite attractive credit spreads in non-AAA rated bonds," said Dhawal Dalal, CIO- Fixed Income, edelweiss asset management ltd.

Borrowing cost for all companies across ratings also eased with yields on corporate papers falling by 50-100 basis points depending on the tenor. For instance Reliance which raised 3 year money at 7.2-7.4% in April saw the borrowing cost fall to 7.05% to 6.95% in May. The paper is currently trading at 6.7%.

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