Market participants say that investor confidence has deteriorated significantly in perpetual bonds after the Yes Bank crisis.
Mutual funds are believed to be selling perpetual bonds in the secondary market largely led by redemption pressure and private sector banks are known to be the likely buyers of these papers, with yields on such bonds trading between 8.72% and 16.55% in recent days, data on the NSE showed. Perpetual bonds are debt instruments that do not have a fixed maturity date.
According to the NSE data, perpetual bonds of State Bank of India, Bank of Baroda, Axis Bank, HDFC Bank, Punjab National Bank, Canara Bank, Punjab and Sind Bank, Andhra Bank, IndusInd Bank and Union Bank of India were traded. The yields on these trades varied between 8.72% and over 16%. Perpetual bonds of IndusInd bank traded at 16.55%.
Market participants say that investor confidence has deteriorated significantly in perpetual bonds after the Yes Bank crisis. “Some of the private sector banks, who understand the risk related to the perpetual bonds, have been buying perpetual bonds in the secondary market while the sale is mostly happening from mutual funds,” a dealer said.
Meanwhile, the corporate bond market is witnessing a tug of war between bond issuers and investors as the former wants to raise funds at a cheaper yields while the latter, mostly banks, want to lend at higher rates and are unwilling to compromise much despite possessing cheaper TLTRO funds, bond dealers say.
Ajay Manglunia, MD and head-fixed income, JM Financial, said investors are trying to ask for higher yields in the primary market which some bond issuers are unwilling to pay. “The impact of this is that issuers are sometimes limiting their fund-raising. For example, Bajaj Finance was willing to raise a larger quantum of funds but it ended up raising only Rs 200 crore on Tuesday because the yields demanded by investors may be a bit higher than expectations of issuer. No one is in a hurry,” Manglunia pointed out.
Tata Steel is believed to have raised Rs 1,000 crore on Wednesday, dealers said. According to information provided by sources, Tata Steel raised Rs 500 crore via a 3-year paper at 7.85%. Tata steel also accepted Rs 500 crore via a 3-year six-month paper at a fixed rate of 7.95%, dealers pointed out. FE could not independently verify the same.
On Tuesday, M&M Financial Services raised Rs 475 crore via a three-year bonds at 7.5% while Bajaj Finance raised Rs 200 crore via three-year bonds at 7.06%, according to information provided by dealers. These yields are lower than the rates when these firms had previously hit the primary bond market in February. For instance, Bajaj Finance had raised funds via a similar tenor paper at 7.10% in mid-February this year. Similarly, M&M Financial Services raised funds via three-year paper at 7.60% at the beginning of February, Bloomberg data showed.
Over the next few weeks, Hero Fincorp, HDFC, Bajaj Finance, Tata Capital Financial Services, Aditya Birla Financial Services, L&T Financial Services, Muthoot Finance and Manappuram Finance are some of the firms that are likely to hit the bond market, according to dealers.
Market participants also pointed out that it is unlikely the yields on top-rated papers will go higher beyond a certain point as demand for credit is not that high while there is enough liquidity in the system. “It is just that the risk appetite is low,” said a dealer.