Elevated yields in the bond market may put a spanner on the fund-raising plans of companies and force them to follow a wait-and-watch policy till things ease.
In the past week, two non-banking financial companies – Housing and Urban Development Corporation (Hudco) and Bajaj Finance – have been forced to withdraw their issuances, as investors demanded higher yields.
Another senior official from a non-banking financial institution told FE that it will time the market now before tapping the market due to hardened yields.
Why issuances are being postponed
Dealers said that in the case of Hudco, the cut-off came at 6.88% levels, which issuers were not comfortable with. “This caused them to postpone their issuances or tap other avenues for fund raising. They might move towards bank credit as well,” said a dealer at a private sector bank.
“The withdrawal of issuances reflects the near-term spike in yields, which made borrowing temporarily unviable. Investors have turned defensive given the fiscal uncertainty, tariff risks, and supply overhang in G-Secs and SDLs, and this is being passed on to corporate issuers as well,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.
The higher corporate bond yields reflect the rising government bond yield. The yield has been rising since the last policy on August 6 due to no expectation of rate cut, worry on fiscal slippages and worsened demand-supply dynamics. The yields rose 23 basis points in August and 35 bps since June policy. Whereas, corporate bond yields have risen more than 20 bps since the August policy.
Outlook for corporate issuances
With the record issuances seen in the June quarter, August hardly saw major issuances. During April-June, corporates front-loaded their issuances as yields came down significantly followed by the policy rate cut.
Sreenivasan attributed the slowdown in Issuances to yield volatility. “Some corporates are adopting a wait-and-watch approach, but appetite for high-quality issuances remains intact though yields are slightly upwards,” he said. Sreenivasan added that rebound may be visible post-September, once fiscal concerns are better understood and global headwinds ease.