Corporate bond redemption surpass issuances in Q1

Published: August 14, 2019 12:51:00 AM

“While issuances are expected to pick up from the September quarter, the June quarter witnessed redemptions as mutual funds and banks were not willing to lend to the troubled sector,” said Khajuria.

While the amount has reduced, the percentage share also dropped from 19.04% in July 2018 to 15.3% in May 2019.While the amount has reduced, the percentage share also dropped from 19.04% in July 2018 to 15.3% in May 2019.

By Shashank Nayar

Non-banking financial companies (NBFCs), which account for 90% of corporate bond issuances, are seeing higher redemptions. In the three months to June, redemptions have surpassed corporate bond issuances as the sector continues to battle a liquidity crunch.

Consequently, the value of net issuances in the June quarter was a negative Rs 5,751 crore, latest data from the Securities and Exchange Board of India (Sebi) website showed. “During the June quarter, with rising political uncertainty regarding the elections and the looming credit crisis, investors were not willing to take credit calls,” said Ajay Manglunia, head-institutional fixed income, JM Financial. In addition, redemption pressures faced by mutual funds due to their exposures to certain risky accounts added to the pressure on corporate bonds. “An increase in redemption pressures for mutual funds have consequently led to an increase in corporate bond redemptions,” added Manglunia. According to data published by Association of Mutual Funds in India (AMFI), mutual funds witnessed a net outflow of Rs 1.71 lakh crore in June, primarily led by an outflow from liquid funds. Liquid funds invest in lower tenure securities like commercial papers and treasury bills.

Ashutosh Khajuria, chief financial officer (CFO), Federal Bank, said that redemption pressures were heightened in the June quarter as both mutual funds and banks had either stopped or lowered lending towards NBFCs. According to a Care Ratings report, overall exposure of MFs to NBFCs stood at Rs 2.24 lakh crore in May, a drop of Rs 42,000 crore since July 2018, when the liquidity crisis began. While the amount has reduced, the percentage share also dropped from 19.04% in July 2018 to 15.3% in May 2019.

“While issuances are expected to pick up from the September quarter, the June quarter witnessed redemptions as mutual funds and banks were not willing to lend to the troubled sector,” said Khajuria.

However, according to latest data published by Sebi, corporate bond issuances on a private-placement basis for the month of July 2019 witnessed an uptick of nearly 45% year-on-year.

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