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Public issue of corporate bonds slow down amid tepid demand

Tax free bonds have so far been very successful with issues being oversubscribed right on day one

Neelasri Barman  |  Mumbai 

Public issue of corporate bonds slow down amid tepid demand

Public issue of corporate bonds is likely to come down in the second half of the financial year, owing to investor’s preference for tax-free bonds. Around this time in the past financial year, companies had raised nearly Rs 5,000 crore by way of public issue of corporate bonds compared with a meagre Rs 800 crore this year, data from Securities and Exchange Board of India (Sebi) showed. So far in the current financial year, tax-free bonds have been quite successful, with issues being oversubscribed on the first day itself. However, when it comes to public issue of corporate bonds, they, too, found takers but the euphoria was not like what was witnessed by tax-free bonds. “This year, there will be a lot of tax-free bond issues as a result of which normal bonds may take a backseat. But after December, once the supply of tax-free bonds gets over, there may be few public issue of bonds. In the meanwhile, issuers may raise funds through private placement route,” said Ajay Manglunia, senior vice-president (fixed income) at Edelweiss Securities. ALSO READ: Missed out on tax-free bonds? Try perpetual bonds

Earlier this year, Srei Equipment Finance, Srei Infrastructure Finance and Muthoottu Mini Financiers had tapped the public issue route.

A senior official of a company, which had tapped this route earlier, said they would do public issue of corporate bonds if the market is right. “The post-tax returns are much higher in tax-free bonds for investors due to which the demand may not be much for the normal bonds currently.”

ALSO READ: Sebi to end wordy agony of IPOs Some companies that were planning to raise funds through public issue have changed their mind. Manappuram Finance was planning to raise funds though public issue of bonds, but according to sources, it would now go for private placement of corporate bonds and bank loans. “That (private placement of bonds and bank loans) will turn out to be more cost-effective for us,” said an official. Meanwhile, tax-free bonds public issue by state-run NTPC and Power Finance Corporation (PFC) sailed smoothly right on Day One. The pricing of these bonds were decided before the Reserve Bank of India (RBI)'s monetary policy review in which the repo rate — the rate at which banks borrow from RBI — was cut by 50 basis points. It is believed that after the rate cut, the pricing of tax-free bonds that would hit the market might not be as attractive as NTPC and PFC. As a result, investors rushed to buy the bonds offered by the two issuers. In FY16, companies are raising Rs 40,000 crore through tax-free bonds. The government had allowed seven entities to raise funds through this route.

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First Published: Tue, October 13 2015. 22:39 IST