Funds raised via the private placement of corporate bonds hit a record high of Rs 4.58 lakh crore in the 2015-16 financial year, data from the Securities and Exchange Board of India (Sebi) shows.
This is also a 13.35% rise from the FY15 figure of Rs 4.04 lakh crore. Latest data from Sebi indicates March saw issuances worth Rs 43,449.74 crore, while the highest issuances took place in the month of April at Rs 84,806.74 crore.
In contrast to this, latest data from the Reserve Bank of India (RBI) shows non-food credit has grown at a rate of 11.33% on a year-on-year basis for the fortnight-ended March 18.
Market participants attribute the rise in issuances to benign rates in the debt market led by a repo rate reduction spree by the central bank. Although bond yields saw wild swings in 2015, they have remained comparatively attractive than bank lending rates.
“The rise in private placement of corporate bonds was mainly due to the attractive prices in the debt market led by a 125 basis points repo rate cut which attracted a lot of issuers,” said Ajay Manglunia, executive vice-president at Edelweiss Securities.
Following the repo rate cuts, banks trimmed their base rates by almost 60-70 basis points with the lowest base rate standing at 9.30% for the period. However, bond yields remained at least 90-100 basis points below the lowest base rate in the system thereby prompting some shift of borrowing towards the debt capital markets.
Corporate bonds are debt instruments created by companies for the purpose of raising capital. These are called fixed-income securities because they pay a specified amount of interest on a regular basis.
Borrowing rates in the debt market continue to remain at lower levels. Currently, a AAA-rated public sector unit (PSU) can raise funds via long-term paper at a yield close to 8.20%. In January 2015, the yield was trending close to 8.50% before the first of the repo rate cuts commenced.
Although the yields have not fallen in tune to the repo rate reduction, it is noteworthy that 2015 was a year full of volatility led by the Greek crisis, China meltdown and intermittent fears of a rate hike by the US Federal Reserve.
As a result, despite initial fall in the yields on repo rate cuts, they had intermittently hardened.
Market participants believe the figure for private placement would have risen even further if the markets were not hit with multiple bouts of volatility.