Firms tapping bond markets for cheaper funds

Written by fe Bureau | Mumbai | Updated: Oct 18 2014, 07:20am hrs
Corporates are tapping the bond markets and raising funds at a cheaper rate as interest rate cycle seems to be turning. Earlier this week, three public sector companies, Rural Electrification Corporation (REC), Power Finance Corporation (PFC) and Power Grid Corporation of India (PGCIL) raised R8,100 crore through private placement of bonds which was cheaper by about 30 bps.

PFC raised R2,400 crore through three- and five-year bonds priced at 8.9% and 8.96%, respectively, on Friday, while REC raised R3,200 crore through five-year bonds at 9.04%. PGCIL hit the market again this month with a strip bond issue for 15 years with a redemption in equal instalments from the end of the fourth year. PGCIL raised R2,500 crore with a coupon of 8.93%.

In September, PGCIL raised R4,365 crore through strip bonds via private placement. The bonds carried a uniform coupon rate of 9.30% across three tenures of 5, 10 and 15 years. Similarly, REC, too, issued strip bonds and raised R3,600 crore with a coupon rate of 9.39% across 5, 10, and 15-year maturities. The issue also had a coupon rate 9.30% for the three-year maturity.

Market players expect yields to cool further, on account of improving macro economic situation and increased FII participation.

With fall in rates, wholesale price index, consumer price index and crude prices, there is a hope that the RBI will cut rates, which is pushing yields down, said Ashish Jalan, assistant vice-president at SPA Securities.

Jalan said FIIs are investing in corporate bonds in a big way as they are exhausting their limits in the government securities. Citing PGCIL's recent deal, Jalan estimates that FIIs mopped up about 15-20% of the issue. According to Sebi data, corporates in FY15 have so far raised R1,45,290.79 crore. In September, issuances by corporates stood at R58,578.53 crore compared with R17,763.12 crore in the same period last year.