PSUs are going big on bond markets even as G-Secs find few takers

RBI devolves over Rs 20,000 crore in Rs 31,000-crore bond auctions

Public sector enterprises have stepped up their borrowing from the bond market and are raising money at rates cheaper than what the states are getting their funds for.

On Wednesday, the National Highways Authority of India (NHAI) priced its 19-year bonds at 7.10 per cent. It raised Rs 6,000 crore. Some states are raising 10-year money at this rate, auctions conducted by the Reserve Bank of India (RBI) shows. 

In the government bond market space, however, yields have started climbing rapidly. The 10-year bond yields closed at 6.13 per cent, after hitting below 6 per cent last week on the RBI’s open market operations (OMOs). The market is asking for more OMOs through which the central bank buys bonds from secondary markets. 

On Thursday, the RBI devolved almost the entire stock of its 2025 bonds, and the 10-year benchmark bond. The primary dealers had to buy Rs 11,000 crore each in both the bonds as the market demanded higher yields. The central bank received only one bid each for its five-year and 10-year benchmarks at 5.59 per cent, and 6.05 per cent, respectively. It sold Rs 300 crore in the five-year bond and Rs 100 crore in the 10-year bonds, while the primary dealers, the underwriters of the bond auctions, had to buy the rest. 

The new 40-year bond was subscribed fully, and the government raised Rs 7,000 crore at 6.76 per cent. The total auction was for Rs 31,000 crore, to be raised through four bonds.

The government in the Budget said it would borrow Rs 80,000 crore extra in this fiscal year, while the next year’s gross borrowing target would be Rs 12 trillion once again.

However, the bond market strike seems to be not much of an issue for the public sector enterprises. These companies are AAA rated and are considered quasi-government and so are considered safe. 

On Thursday, the National Bank for Agriculture and Rural Development (NABARD) priced its 3 years bonds worth Rs 3,000 crore at 5.53 per cent, and raised 10-year government serviced money at 7 per cent. 

Although the public sector companies and all India financial institutions raise money on a regular basis, they become particularly active during the financial year-end. 

“The NHAI 19-year bond issuance was particularly interesting. They got it so cheap,” said a bond arranger requesting anonymity. According to the bond dealer, the reason why the companies are able to raise funds at a cheap rate is the funds are almost government guaranteed. 

Public sector banks have also become active in raising additional tier-1 bonds. Bank of Maharashtra, Canara Bank, Union Bank, Bank of India, Bank of Baroda, Punjab National Bank etc., raised bonds recently at around 8 per cent coupon. The banks have been asked by the RBI to raise funds from the markets to take care of their bad assets and lend further.