A possible pullback in the Federal Reserve?s quantitative easing (QE) programme may have dampened the exuberance of overseas investors towards high-yield bonds, according to investment bankers.
Just a month ago, strong demand for high-yield paper had helped junk-rated Rolta India to raise $200 million through five-year bonds at a coupon of 10.75% to yield 10.875%, which had raised expectations of other similar rated issuers coming to the market. According to sources REI Agro, which was forced to postpone a $300 million bond issue at a 12% yield earlier this year, along with Core Education, were mulling high-yield bond issues. However, since markets have turned cautious, these issues may not see the light of day, say bankers.
?Whatever be the other consequences of Fed?s comments, one thing is for sure: The investors will trade cautiously and will mostly be interested in buying top rated paper,? an investment banker said. The US 10-year yield traded around 2.12% through the last two weeks, close to 14 months high on Bernanke?s comments reflecting the sentiment of investors. The benchmark yield climbed to 2.23% on June 6, highest since April 2012 after reaching a 2013 low of 1.61% on May 1.
On May 22, Ben Bernanke said a decision to cut the current pace of bond purchases of $85 billion a month may be taken at its ?next few meetings?. The comments have reduced risk appetite of investors who are now far less willing to take such gambles, bankers who were involved in the bond issues by Indian companies said.
?Liquidity is still there and once the market stabilises, overseas issuances not only by Indian companies but also other emerging nations will start to flow in again. We still have to see what kind of pricing power they will command. We could expect that most bonds then will be investment grade,? another investment banker said.
Bankers said the public sector banks and companies and reputed private Indian companies could still see healthy demand as issues from Indian corporates are still fewer in number that those originating from other emerging countries India Inc raised $11 billion in 2013 so far compared to $9.8 billion raised in 2012. Banks such as Canara Bank, which was looking to raise $1 billion through dollar-denominated bonds and Syndicate Bank which had planned to raise $500 million are still expected to return to the market once the volatility dies down, investment bankers said.