Pvt placement of corporate bonds trebles in April-July

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Mumbai | Updated: August 6, 2015 2:14:53 AM

Private placement of corporate bonds increased more than three times in the first four months of FY16 compared to the same period in FY15 with companies mopping up R1.69 lakh crore through this route, according to data from the Securities and Exchange Board of India.

Private placement of corporate bonds increased more than three times in the first four months of FY16 compared to the same period in FY15 with companies mopping up R1.69 lakh crore through this route, according to data from the Securities and Exchange Board of India.

Between April and July 2014, companies raised R53,836.73 crore through the corporate bond market — lower than that raised in April 2015 alone: Sebi data show April had seen a record amount of issuance at R84,806.74 crore.

Some bond market participants, however, expressed skepticism about the figures. The data also indicated that companies had borrowed R27,920.35 crore in July 2015 through bonds. Although this is below the R36,125.09 crore raised in June, it was an almost 10-fold rise on a year-on-year basis.

Meanwhile, Power Finance Corporation on Wednesday received bids at 8.45% for its five-year bond issue, sources said. According to information provided by bond arrangers till the time of going to press, the company has raised close to R1,000 crore and may continue to raise funds on Thursday.

Steel Authority of India received bids at 8.40% for its five-year bonds, but the management has not taken any decision yet, a source said.

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Market participants also indicated that Power Grid Corporation and Rural Electrification Corporation are likely to tap the bond markets soon. With bond coupons lower than bank lending rates, companies are increasingly preferring the bond market and money market route for their funding requirements.

The lowest base rate offered by the Indian banking system is 9.70% whereas a AAA-rated public sector unit can raise funds through long-term bonds at a rate close to 8.55-8.60% — a difference of at least 110 bps.

Sandeep Bagla, associate director at Trust Goup, said the current rates for AAA-rated corporate bonds are between 8.30% and 8.60% annualised for tenures ranging from 3-10 years, depending on the type of issuer, frequency of issuance, credit outlook and other such factors.

“While the near-term outlook could be cloudy due to volatility in global rate markets, we do expect yields to drift lower on a trend basis. If the domestic inflation outlook remains benign, there is no reason why rates would not be lower by 50-75 bps going forward,” he said.

In FY15, companies raised R4.04 lakh crore through the corporate bond market—a 46% rise compared to the previous fiscal. In comparision, bank credit growth hit a two-decade low, according to data towards the end of FY15, thanks to the massive exodus of companies to the corporate bond market.

Bond arrangers are optimistic that issuances this fiscal could surpass what was seen in FY15. “We expect the corporate bond market to grow at a healthy rate of 20%-plus annually, so the issuance of corporate bonds could touch R5 lakh crore easily. What is also likely is that we will see newer sets of issuers across the credit spectrum raising money through the bond route going ahead.” Bagla said.

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