COMPANIES and banks have raised more than Rs 1 lakh crore through private placement of corporate bonds in the first two months of this fiscal, more than a fourth of the amount raised through this route in the whole of FY15, Sebi data show.
More than R1.05 lakh crore has been raised through private placement of corporate bonds in April and May alone, while for the entire FY15, the figure stood at R4.04 lakh crore.
In April 2015 alone, the amount raised through this route was R84,806.74 crore, which has caught bond market experts by surprise as issuances had been lax in the first month of this fiscal. In May this year, the figure stood at R20,691.95 crore.
Ashish Jalan, assistant vice-president at SPA Securities, says more and more corporates are now approaching the corporate bond market because of attractive borrowing costs. “This fiscal, we can expect companies and banks to raise more than R5.5 lakh crore through the corporate bond market route. A 25% increase from last fiscal year’s figure is certainly possible,” Jalan said.
Corporate bond yields are currently at least 100-150 bps lower than bank lending rates. The lowest base rate stands at 9.7% while a AAA-rated public sector unit can borrow funds in the range of 8.5%-8.55% from the bond market.
Non-food credit growth in FY15 was at two-decade lows while funds raised through corporate bond market increased more than 46% on a year-on-year basis in FY15 — a trend that shows increasing shift from bank borrowing.
Since the beginning of May, there were two major selloffs in the global bond market that also had its effect on the corporate bond yields. There is also a lingering fear of the US Fed hiking its interest rates later this year, which may lead to a further hardening of corporate bond yields. But market experts still believe the difference in borrowing costs is still too wide for any possible shift to bank borrowing. Foreign investors have also started turning towards the corporate bond market after having exhausted their quota in government securities. Data from the depositories show foreign investors have exhausted over 75% of $51-billion investment limit in corporate bonds.