Corporate bond issuances may pick up in 4th quarter

Stability in interest rates seen the key reason for more issuances

Corporate bond issuances through private placements may pick up in the fourth quarter, owing to the expected stability in interest rates. Issuances, which had slowed in mid-July, may rise about 25 per cent compared to the last quarter.

In mid-July, the Reserve Bank of India (RBI) had resorted to a host of measures to tighten liquidity and arrest volatility in the rupee.

Consumer Price Index (CPI)-based inflation eased in December and it is expected Wholesale Price Index (WPI)-based inflation may have also eased, owing to which RBI may resort to a pause in key policy rates in the third-quarter monetary policy review scheduled for January 28. This may result in a fall in coupon rates. Also, as the government's borrowing programme is expected to be completed in the first week of February, traders may have an appetite for corporate bonds.

"Some revival in the corporate bond market is possible. Issuances went down earlier this year due to uncertainties in the bond market after mid-July due to RBI's liquidity-tightening measures. At that time, bank finance was much cheaper compared to the corporate bond market. Looking at the way inflation is expected to pan out and the way yields are moving, we may see some appetite from investors for these corporate bonds," said Siddharth Shah, vice-president, STCI Primary Dealer.

Recently, IDFC raised funds through a private placement of corporate bonds, issuing 10-15 year papers with coupon rates of 9.65-9.7 per cent.

Corporate bond yields may fall further from current levels in the days to come. "Softening in corporate bond yields will happen this quarter, but it may not be much. A significant drop can be expected only if there is a change in the monetary policy stance," said Dwijendra Srivastava, head of fixed income, Sundaram Mutual Fund. He added there would be reissuances and rollover demand for corporate bonds and the rise in issuances might be 20-25 per cent. Fresh issuances may be low, as the economy is still reeling from a slowdown, owing to which bank credit growth is sluggish.

On Monday, the yield on the 10-year 'AAA' public sector undertaking corporate bond ended at 9.54 per cent, while that on the five-year bond closed at 9.85 per cent.

According to data from the Securities and Exchange Board of India, corporate bond issuances through private placements stood at about Rs 59,000 crore during the quarter ended December 2013, 29 per cent lower compared to the corresponding quarter of the previous financial year.