Modi win kickstarts rupee bond sales as borrowing costs decline to year low

Billionaire Kumar Mangalam Birla's Grasim Industries Ltd. and UltraTech Cement Ltd plan to raise a combined Rs 7.5 billion ($108 million) selling five-year bonds

After a dull start to the quarter, rupee bond sales by Indian companies are set to revive as borrowing costs have declined to the lowest in a year following Prime Minister Narendra Modi’s landslide election victory. State-owned NLC India Ltd. priced Rs 14.75 billion of debt Monday -- its first issuance in a decade -- as average yield for 10-year AAA paper fell to 8.31%, the cheapest since last May.

“Yields have come down and corporates waiting to refinance will borrow,” said Sandeep Bagla, associate director at Trust Group in Mumbai. “Issuance will pick up pace as clarity on the regime improves business sentiment.”

JSW Steel Ltd., the nation’s second-biggest producer, plans to raise Rs 70 billion via bonds and State Bank of India, the country’s largest lender, is considering raising as much as Rs 50 billion through notes on Wednesday, according to exchange filings.

Local-currency issuance in the three-month period that began April 1 is about Rs 700 billion, or 25% of the total raised in the March quarter, as companies held off fundraising during the six-week election process that ended May 19. Corporate bond sales in the year to March 2020 may be between Rs 6.75 trillion to Rs 7 trillion, up from Rs 6.5 trillion a year earlier, according to Care Ratings.

The potential for reforms after Modi’s comprehensive victory is likely to improve the flow of foreign capital to corporates, according to S&P Global Ratings. That’s good news for India’s credit markets, which have suffered from a crisis of confidence after shock defaults since last year by Infrastructure Leasing & Financial Services Ltd. and a string of downgrades at mortgage lender Dewan Housing Finance Corp and Reliance Capital Ltd.