Amid hardening of yields, REC and IIFCL do not raise full quantum

REC raised Rs 2,595 crore at 7.28%; IIFCL raises Rs 1,040 crore at 7.56%

State-owned REC Ltd. and Indian Infrastructure Finance Company Ltd. (IIFCL) on Tuesday did not raise the full quantum they were in the market for. While state-owned REC raised Rs 2,595 crore through 15-year bonds at 7.28 per cent, IIFCL raised Rs 1,040 crore through bonds maturing in three years and 36 days at a cut off 7.56 per cent, sources said.

 

REC was in the market to raise Rs 3,000 crore with a base issue size of Rs 500 crore and a green shoe option of Rs 2,500 crore, IIFCL tapped the market to raise Rs 2,000 crore. REC also reissued bonds worth Rs 2,655 crore on Tuesday.

 

Earlier this week, even Housing and Urban Development Corporation (HUDCO) did not raise the full Rs 3,000 crore and instead retained Rs 2,910 crore through bonds maturing in ten years at a cut off of 7.29 per cent.

 

According to market participants, the yields on AAA-rated corporate bonds have hardened following the 25 bps policy rate cut by the six-member Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI), as the market had priced in the rate cut already and there were no additional liquidity measures announced by the central bank. The rise in yields is also attributed to an increased supply of bond issuances and some large investors becoming more selective in their investment decisions.

 

“The credit spread has gradually widened, with AAA papers now trading 40-50 bps over the sovereign curve, compared to around 30 bps in December. While the G-sec curve saw some relief on the back of additional open market operations (OMO) announcements, the rate cut was largely baked in. The street was looking for concrete measures to address the duration liquidity deficit”, said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

“Large ticket players are currently sitting on the sidelines, cherry-picking opportunities in the credit space. With a heavy SDL supply pipeline looming in March, issuers are facing pushback on quantum and pricing. We are seeing incomplete book builds as investors demand higher premiums to compensate for duration risk in this tight liquidity environment,” Srinivasan said.

 

Meanwhile, Indian Railway Finance Corporation (IRFC) is tapping the market to raise Rs 3,000 crore through 15-year bonds, and Punjab National Bank is looking to raise Rs 5,000 crore through 10-year infrastructure bonds.