The total corporate bond issuance in FY19 was Rs 6.1 lakh crore, just slightly higher than `6 lakh crore mopped up in FY18.
By Vinayak Agarwal
Corporate bond issuances through the private placement route have seen a 76% increase to Rs 1.14 lakh crore in March from Rs 64,916 crore in March, 2018. This was the highest issuance in any month of FY19, according to the Securities and exchange board of India (Sebi). The total corporate bond issuance in FY19 was Rs 6.1 lakh crore, just slightly higher than Rs 6 lakh crore mopped up in FY18. Kamal Mahajan, head of treasury and global markets, Bank of Baroda, said the amount raised in 2018-19 may have been higher, had lenders not been so risk averse following the IL&FS crisis which spilled over to some Non Banking Financial Companies(NBFC). Bond market players said NABARD had been among the bigger borrowers.
The current year 2019-20could see more companies approaching the bond markets. This is because Sebi’s mandate that requires 25% large corporates —defined as a listed company with at least an ‘AA’ rating and outstanding long-term borrowing of `100 crore or more — to borrow 25% of their requirements through corporate bonds market, has kicked in from April 1, bankers said. According to the Bloomberg data, the average corporate bond spread for ‘AAA’ rated 10-year paper fell to 108 basis points in April, the lowest since December 2018. The spread in March was 140 bps.
For instance, L&T finance issued a three -year paper on March 13 at a coupon rate of 9.10%, on the same day the G-sec bonds were trading at 7.55% which is a spread of 155 bps. On April 15, L&T Finance issued a three-year paper at the coupon rate of 8.70% when on the same day the G-sec bonds where trading at the rate of 7.53%, which is a spread of 117 bps.
The cost of borrowing for companies rose in 2018-19 from year ago as the weighted average yield of corporate bonds, across all maturities and ratings, in 2018-19 was 8.96%, 87 bps higher than that in 2017-18, according to the CARE ratings.
The corporate bond yields had risen to a two-year high in the first and second quarter of fiscal year 2018-19 on account of the RBI rate hikes (by 50 bps in June 2018 and August 2018) and the subdued investor sentiments in the aftermath of the default in a systemically important NBFC which resulted in higher cost of borrowing for issuers of corporate bonds which consequently led to lower funds being raised from the corporate bond markets, said analysts at CARE ratings.
In FY19, during April to September, 2018 g-sec yields rose by 61 bps while corporate bond yields rose by 58 bps while in October to March g-sec yields fell by 32 bps and the weighted average yields of corporate bonds decline by 43 bps.
The benchmark yield, maturing in 2028, traded at an average 7.48% in March; fell from the average 8.09% in September 2018. The 10-year g-sec yield closed at 7.49% on May 6.
In terms of sectoral issuances during March, banking accounted for the major share of issuances (44%), followed by housing finance (20%) and financial services (11%), as per CARE ratings data.