More long-tenor govt securities issuances expected this year

Around Rs 2 lakh crore of redemptions lined up for financial year 2015-16.

With the Union government and the Reserve Bank of India meeting tomorrow to prepare the farmer’s borrowing plan for the year ahead, market participants expect more issuances of long-term government securities in 2011-12.

In the current financial year, ending this month, 39 per cent of all issuances were in the five-nine year tenor, 38 per cent in the 10-14 year tenor and 10 per cent in the 15-19 year tenor.

“In line with recent issuance patterns and the existing debt distribution profile, we expect increased issuance in the 10-19 year tenor range and slightly lower issuance in five-nine years,” said Kumar Rachapudi and Siddhartha Sanyal of Barclays Capital, in a note.

According to data provided by RBI, around Rs 2 lakh crore of redemptions are lined up for financial year 2015-16, as well as 2016-17. In 2011-12, redemptions were around Rs 1.3 lakh crore.

Also, the demand will be higher for long-term maturities. “Insurance companies’ businesses have increased and their appetite for long-term gilts in also increasing. The same is the case for pension funds,” said Pradeep Madhav, managing director, STCI Primary Dealership.

In the Union Budget, the government has projected a gross borrowing of Rs 4.17 lakh crore and net borrowing of Rs 3.43 lakh crore in financial year 2011-12. In the current financial year so far, the government has borrowed a gross Rs 4.37 lakh crore and a net Rs 3.25 lakh crore.

“In the past five years, 2008-09 was the only year when the first half issuances (ie, actual issuance, not announced issuance) was lower than the second half amount. And, this was because of the government’s fiscal stimulus announced in the second half to counter the impact of the global financial crisis,” said the Barclays’ note. Barring this exception, the H1 average issuance in the past five years has been around 64 per cent of the full-year total, they add.

The market expects the government to front-load the borrowing programme in 2011-12, too. “We expect 62-65 per cent of the government borrowing will be completed in the first half itself,” said Ajay Manglunia, senior vice-president, Edelweiss Securities.

“Assuming 65 per cent of the borrowing is completed in the first half, we could see Rs 10,000-12,000 crore worth of issuances per week,” said Madhav.