Corporate bond issuances in February declined for the fourth consecutive month and was 49% lower than the issuances in January, according to data by Prime Database.
With the bond spreads – the difference between the yields of corporate bonds and government bonds – having widened over the past few months by 140 basis points (bps), corporate bond issuances through the private placement route remain highly subdued, market experts said.
For instance, Housing Development Finance Corporation (HDFC) on January 15 had issued a 1-year corporate bond at 8.7%, however, it paid 8.62% for a similar tenure bond on February 1 this year.
Corporate bond issuances in February declined for the fourth consecutive month and was 49% lower than the issuances in January, according to data by Prime Database. Bond spreads for the 10-year AAA-rated paper widened to 140 bps and was the highest in the past six years, according to data by Bloomberg.
Dealers believe issuances were lower in February as issuances were held in expectation of a rate cut coupled with corporates opting to issue dollar bonds added with lower demand from mutual funds.
“Right now, there is a demand for a higher coupon rate and lower yields as risk appetite for corporate bonds is down amid subdued inflows into mutual funds,” said a dealer.
According to data by the Securities and Exchange Board of India (Sebi), issuances for the April-January period in FY19 at Rs 4.5 lakh crore was 6.31% lower than the issuances for the corresponding period in FY18. Corporate bond isssuances through the private placement route in January fell 1.6% on month-on-month basis while issuances in December increased 35% month-on-month – highest for any month in FY19. Total issuances through the private placements were at `83,587 crore in January against issuances of `85,000 crore in December.
The marginal cost of funds based lending rate (MCLR) – the rate below which a bank cannot lend – has been lower than the corporate bonds yields for the April-December period by 38 bps. The average MCLR for the period was 8.61% while corporate bond yields averaged at 9%.
“With the secondary market yields determining the rate of interest paid by corporates for fresh funds raised, it thus follows that the borrowings from the corporate bond markets have gotten costlier compared with borrowings from banks,” said experts at Care Ratings. For the past two years, the bank rate was higher than the corporate bond yield.