Corporate bond issuance through private placement double in June

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July 18, 2019 2:11 AM

“Insurance firms and mutual funds were the major buyers of the corporate bonds in June and now that the banks have surplus liquidity, they are also buying the bonds,” said Ajay Manglunia, MD and head-institutional fixed income, JM Financial.

Corporate bond, Corporate bond fund, Corporate bond market, Corporate bond fund sbi, Corporate bond market in india, PSU, PSB, banks, CARE Ratings, State Bank of India, Power Fin Corp, REC, HDFC, LIC Housing Finance, The weighted average cost of corporate bond issuances in the primary market was 21 basis points lower at 8.28% in June from 8.49% a month ago, a Care Ratings report said.

Corporate bond issuances through private placement have doubled to Rs 49,071 crore in June against Rs 23,733 crore in the same month last year, according to Securities and Exchange Board of India (Sebi) data. In the April-June quarter, corporate bond issuances went up 28% to Rs 1.62 lakh crore compared with the corresponding quarter last year.

Bond traders said most of the issuances were done by PSUs and ‘AAA’ rated NBFCs such as State Bank of India, Power Fin Corp, REC, HDFC, LIC Housing Finance, etc.

“Insurance firms and mutual funds were the major buyers of the corporate bonds in June and now that the banks have surplus liquidity, they are also buying the bonds,” said Ajay Manglunia, MD and head-institutional fixed income, JM Financial.

The weighted average cost of corporate bond issuances in the primary market was 21 basis points lower at 8.28% in June from 8.49% a month ago, a Care Ratings report said.

Bond dealers said the rally in the G-sec bonds, after the rate cut in June monetary policy, transmitted to the corporate bonds with ‘AA’ and higher ratings. The cost of borrowings for the Central government declined to a 20-month low of 6.92% in June, 36 bps lower than the previous month.

The spreads of ‘AAA’ rated corporate bonds over G-Sec widened across maturities in the month of June. The spreads on the one-year paper widened by 20 bps, three-year corporate bond widened by 26 bps and five-year by 19 bps. The ‘AAA’ rated 10-year corporate bond spreads also widened by 7 bps.

According to the FIMMDA data, the average corporate bond spread for ‘AAA’ rated three-year paper rose to 123 basis points in June. The spread in May was 108 bps.

With respect to sectoral issuances during June, banks accounted for the highest share of corporate bond issuances at 29%, followed by roads and highways (22%), financial services/investment (19%) and housing finance (9%), according to the PRIME Database data.

The yield on the benchmark bond maturing in 2029 declined 10 basis points to 6.33% on Tuesday, lowest level since December 7, 2016. It closed at 6.35% on July 17. Year to date, the yield on the 10-year benchmark has fallen nearly 100 basis points.

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