Companies line up Rs 16,620 crore corporate bonds as yields soften

With the end of the central government’s borrowing programme for the current financial year and state securities issuance remaining below the indicative amount on a weekly basis, investors are increasingly turning their attention to corporate bonds.

Indian companies plan to raise up to Rs 16,620 crore through corporate bonds in the next three days. Frequent issuer National Bank for Agriculture and Rural Development has invited bids for re-issuance of bonds maturing in five years on Thursday.

Corporate bonds witnessed strong demand in February with the yield on the AAA-rated five-year, and 10-year corporate bonds falling by 10 basis points (bps) and 5 bps, respectively. The central government's borrowing programme ended on February 16.

“Demand is good. Most of the issuances have been getting a good response. And the cut-off yield is also finer than what it used to be,” said Ajay Manglunia, managing director and head (investment grade group), JM Financial.

“Government securities demand is also pouring into the corporate bond market, as GSec supply is now paused. State bond supply is coming up, but the amount is lower than the calendar amount that is being grabbed by long-term investors,” he added. 

Market participants expect that states’ borrowing for both the current quarter and the entire financial year will be significantly lower than the calendar projections. States’ indicative borrowing for the fourth quarter of the current financial year was Rs 4.1 trillion.

Indian Railway Finance Corporation on Monday raised Rs 3,000 crore at 7.44 per cent through bonds maturing in 10 years. Market participants said the insurance companies and pension funds were the major investors for the long-term bonds. 

There is strong demand among investors for long-term bonds on the view that the interest rates have peaked and the next step by the Reserve Bank of India’s Monetary Policy Committee would be a rate cut, said market participants. 

“Given that we are approaching the end of the financial year, issuers, especially non-banking financial companies, are tapping the market because they need liquidity for their book,” said a dealer at a state-owned bank. “The trend will continue both in terms of supply and demand till mid-March,” he said.