Private placement of corporate bonds rose a whopping 81% in April to a record Rs 84,806.74 crore against Rs 46,856.57 crore in March this year, Sebi data show.
Data also indicate that this is the highest-ever fund raising through private placement of corporate bonds in a single month since January 2007. The closest figure was in September 2014 when R58,578.53 crore were raised through this route.
As one expert said, with the new Companies Act coming into effect, April has become a lax period for bond issuances and, therefore, the record fund raising has taken the market by surprise.
Nevertheless, companies are increasingly shifting to bond markets for borrowing even as bank credit growth hit two-decade lows in FY15.
In FY15, companies borrowed a record R4.04 lakh crore via private placement of corporate bonds, a 46% rise from FY14. Banks have increasingly started to concentrate on their retail portfolios ever since their corporate lending took a hit.
According to one bond arranger, ‘AA+’-rated non-banking finance corporations (NBFCs) were staring at near two-digit yields last year where as the rates have softened to near 9% levels in recent times. Moreover, the lowest bank base rates till a few days back stood at 9.75%, which is close to 75 bps above the yields paid by NBFCs.
Even on a year-on-year basis, private placement of corporate bonds has seen a rise of almost 260% compared to the same period a year ago, according to Sebi data.
Foreign investors have also exhausted 76.96% of their quota in corporate bond investments. Out of the $51 billion quota, foreign investors have already invested close to $39 billion in corporate bonds.
In early May, bond markets witnessed a surge in yields due to a global selloff. Yields had risen to a level where some of the companies had to postpone their issuances. However, in recent weeks, the rates had started cooling off, mostly led by anticipation of a rate cut by the RBI at its June 2 policy review.
Ironically, many companies decided to hold back their issuances expecting a further drop in yields after the credit policy. The wait seems to have backfired as a hawkish tone by central bank sent yields surging by 11 bps on the government securities — a benchmark for corporate bond yields.
Market experts are anticipating a good year for corporate bonds and some even expect the FY2016 figure to surpass the previous fiscal.
Even if a host of negative conditions like deficient monsoon, rate hike by the US Federal Reserve and geo-political uncertainties seem to linger over yields, issuances are likely to remain robust this fiscal considering that the minimum bank lending rates are still at least 130 bps above the yields that a AAA-rated public sector unit would have to pay.