)
Activity in the corporate bond market is picking up, with investors developing preference for papers issued by well-rated private sector companies due to higher rates offered by them, while public sector undertakings (PSUs) continue to cancel their issuances. These PSUs had slowed down their issuances after bond yields began to rise earlier this year.
According to issue arrangers, Power Grid Corporation of India (PGC) had postponed their issuances twice, while the other names include Steel Authority of India Limited (SAIL) and few state-run banks. The market has been demanding higher rates for investing in corporate bonds, while these PSUs are not willing to offer such rates. PGC was planning to raise about Rs 3,500 crore by offering papers in the tenure ranging between four and 15 years.
“The coupon rates offered by AA+ and AAA rated private sector companies are roughly 100 to 150 bps more than what are being offered by AAA rated public sector companies. For example, Indiabulls Housing Finance papers have been rated ‘AAA’ and ‘AA+' by rating agencies and the coupon rates offered by them are in the range of 9.75 to 10 per cent for 10-year paper. PSUs are not borrowing long-term money and in fact they have canceled issuances,” said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
According to issue arrangers, if these PSUs continue with this practice of canceling issues then the investors will become skeptical to bid for their papers. These PSUs are unwilling to pay even a couple of basis points higher rates than what they used to pay some time back.
Earlier this year, the guidelines for a new investment pattern for non-government provident funds (PFs), superannuation funds and gratuity funds were announces as per which 35-45 per cent of investments can be made in debt instruments. “Earlier investments in papers from private sector players were limited to 10 per cent of the total investment corpus. Now, it is 35 to 45 per cent and they are clubbed along with the PSU papers. In the ‘AAA’ rated segment, off late there is a tendency for PFs to go for the papers offered by private players than the PSUs. For example, there was a good demand for papers offered by DHFL, L&T Infra, L&T Housing, etc.,” said K P Jeewan, head of fixed income, Karvy Stock Broking.
