Between April and September this year, companies have raised Rs 2.68 lakh crore against Rs 3.80 lakh crore in the comparable period last year, showed Sebi data.
Fundraising by companies through the issuance of corporate bonds in the first half of the current financial year across tenure and ratings is down by 30% on-year due to lower issuances by companies and the lack of support provided by the central bank this year. Between April and September this year, companies have raised Rs 2.68 lakh crore against Rs 3.80 lakh crore in the comparable period last year, showed Sebi data.
Market participants also said the fall in issuances can also be attributed to the higher yields on corporate bonds across tenures and ratings. The movement in yields on corporate bonds was seen after the central government announced higher than expected borrowing and rising G-Sec yields due to international factors such as rising crude oil prices and US Treasury yields.
The yields on corporate bonds maturing in the 3-year, 5-year, and 10-year segment have risen 5-10 basis points in April-September this year, compared to a similar period in the previous financial year. Along with this, the pressure on corporate bonds yields is rising due to the upward pressure on benchmark bonds in the past few days. The benchmark government securities 6.10%-2031 bond yield traded 18-month higher on Monday.
“The increase in borrowing cost and lower issuances were due to higher than expected borrowings via G-Sec in the current year as announced in budget and yields inched up on line with higher yields in G-Sec,” said Ajay Manglunia, MD and Head Institutional Fixed Income at JM Financial.
Despite all this, issuances in September 2021 were highest, with companies raising over Rs 92,000 crore. This was because some issuers said the resumption of business activity and some uptick in credit demand were also expected, which led some non-banking finance companies to tap the market to garner funds that resulted in rise in issuances in September 2021.
Last year in the first half of the financial year, the corporate bond market was supported by the Reserve Bank of India (RBI), which announced Targeted Long-Term Repo Operations (TLTRO) and Long-Term Repo Operations (LTRO), in the wake of the pandemic, which attracted a lot of banks to buy corporate bonds, but that seems absent this year.
“Issuances in H1 FY22 vs H1 FY21 look low because in FY21 higher borrowings were supported by the deployment of unconventional monetary policy tools like LTRO and TLTRO by RBI. These measures enabled higher fundraising from the capital markets,” said Siddharth Chaudhary, senior fund manager, fixed-income, Sundaram Mutual Fund. TLTRO and LTRO provided banks with access to cheap money from the central bank, which they utilised to invest in specific sectors via debt instruments such as corporate bonds, commercial papers and non-convertible debentures.
Meanwhile, the market is now grappling with questions of timing and pace of winding down of monetary accommodation provided in the wake of the crisis and the global debate too has gradually advanced in direction of normalisation. “With all major central banks either already reducing their asset purchases or on the verge of doing so, with a few even looking tighten rates in the coming years,” Chaudhary added.