State-owned entities line up to tap bond market after rate decision

Experts indicated that yields on 'AAA'-rated corporate bonds have inched up slightly

Major state-owned entities including State Industries Development Bank of India (Sidbi), REC Ltd, Housing and Urban Development Corporation (Hudco), and Indian Infrastructure Finance Company Ltd. (IIFCL) are looking to tap the domestic debt capital market to raise as much as Rs 14,000 crore through bonds.

 

Interestingly, these state-owned entities are planning to tap the market shortly after the monetary policy committee’s (MPC’s) decision on the policy rate.

 

The general expectation is that the Sanjay Malhotra-led MPC will announce a rate cut on Friday, with the policy repo rate potentially being reduced by as much as 25 basis points (bps).

 

While Sidbi is aiming to raise Rs 6,000 crore, with a base issue of Rs 2,000 crore and a green shoe option of Rs 4,000 crore, through bonds maturing in 49 months on February 10, REC plans 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, through bonds maturing in 15 years on February 11. Additionally, REC will reissue Rs 3,000 crore worth of bonds.  

 

Similarly, Hudco plans to tap the market on February 10 to raise Rs 3,000 crore, with a base issue of Rs 500 crore and a green shoe option of Rs 2,500 crore, through bonds maturing in 10 years. Additionally, IIFCL will also tap the market on February 11 to raise Rs 2,000 crore through bonds maturing in 3 years and 36 days.

 

Experts indicated that yields on ‘AAA’ rated corporate bonds have inched up a little, as long term investors such insurance companies, pensions funds, etc., have become selective in their investments. Demand from these investors was very strong during December–January, leading to tighter cut-offs for 10- and 15-year ‘AAA’-rated bonds. However, as demand tapered off in February and investors shifted towards G-Secs and SDLs, yields on these long-term ‘AAA’ bonds edged higher due to softer demand and widening credit spreads.

 

“The primary market had hit a temporary air pocket in January amid heightened yield volatility, with issuers adopting a wait-and-watch approach until markets found their feet. Credit spreads have marginally widened as corporate bond yields displayed sticky behaviour relative to their sovereign counterparts,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

“The street has largely priced in a 25 bps rate cut. With several marquee issuers already announcing their post-policy issuance plans, the market seems confident of a stable rate environment ahead. However, participants remain vigilant for any surprising elements in the policy announcement that could impact pricing dynamics of these planned issues,” he added.