With banks flush with TLTRO funds, firms line up to hit corp bond market

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April 14, 2020 6:00 AM

Banks are picking up AAA-rated NBFC papers but insurers are limiting their interest mostly to good quality PSU corporate bonds,” Vora said.

According to dealers, NTPC on Monday raised over Rs 4,300 crore through the bonds having a tenor close to three years at 6.55%.According to dealers, NTPC on Monday raised over Rs 4,300 crore through the bonds having a tenor close to three years at 6.55%.

Good quality companies are lining up to raise funds from the corporate bond market, even as banks are flush with funds raised under the Reserve Bank of India’s (RBI) targeted long-term repo operations (TLTRO) that are to be deployed within the stipulated timeframe of 30 working days.

According to dealers, NTPC on Monday raised over Rs 4,300 crore through the bonds having a tenor close to three years at 6.55%. “The firm was looking to raise up to Rs 6,000 crore but finally raised a lesser amount,” a fund manager said. Dealers also indicated that many companies like Reliance Industries (RIL), Nabard, HUDCO and L&T are likely to hit the corporate bond market in the coming days. FE could not independently verify the same.

Although the number of high-grade firms hitting the market looks attractive, market participants say that investors are still maintaining a high degree of caution due to the prevailing uncertainty with only select names getting preference.

Mihir Vora, director and CIO, Max Life Insurance, told FE that there was demand for good quality corporate bonds but the market continues to remain polarised. “Even long-term investors are not willing to go down the rating curve. For long-tenor papers, buying interest exists mostly for the good public sector unit names because investors’ risk-taking capacity is still limited in current times. Short-tenor private sector papers that have a rating of AAA or AA+ are also seeing interest.

Banks are picking up AAA-rated NBFC papers but insurers are limiting their interest mostly to good quality PSU corporate bonds,” Vora said.

It is noteworthy that almost Rs 1.59 lakh crore of corporate bonds are due for maturity in the next three months up to June 2020, according to data by Prime Database. Although bulk of these papers are rated AAA, other category papers form about 42% of the bonds that are due for maturity. Market sources told FE that concerns have evolved during discussions with a few low-rated NBFC firms whether they would be able to meet the obligations when their papers come up for maturities. “We know of people who are trying to make representations in front of regulators to discuss possible extension of moratorium to NBFCs as well so that they can come out of this rough weather,” a source said. However, certain reports indicate that the markets regulator is reluctant to offer a moratorium deal to the commercial paper and corporate bond repayments coming up in the first quarter.

Although banks have emerged as buyers over the last few weeks being flush with funds borrowed under the TLTRO scheme, MFs have been limiting their buying in current times, according to experts.

Lakshmi Iyer, CIO-debt and head-products, Kotak AMC, told FE that as far as mutual funds are concerned, fund flows are largely coming into short-maturity funds like liquid funds, ultra-short funds and money market funds. “As a result, investments are being made at the short end of the curve at this point in time. It is largely the two- to three-month segment where the funds are being deployed. The assets could either be money market instruments or NCDs but we prefer to deploy funds in very short-term maturity papers. We are giving preference to papers belonging to the high-grade firms that are able to avail financing from banks under RBI’s TLTRO facility,” Iyer said.

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