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Corporate bond issues more than double in April- May

As rates fall to record lows, companies raise Rs 1.63 lakh crore in 2 months, highest in decades.

, ET Bureau|
Last Updated: Jun 04, 2020, 08.15 AM IST
The average spread or differential between top-rated corporate bonds and government bonds is now at 90 basis points compared with 120 basis points in March.
Mumbai: The lockdown appears to have opened the floodgates for corporate bond issues in India. The first two months of FY21 have been the best in decades, with companies raising Rs 1.63 lakh crore — more than double the same period last year and nearly four times of April-May in FY19 — as rates plunged to a record low and banks went slow with loans.

HDFC, L&T Group, Power Finance Corporation, the Tata Group and Reliance Industries led the giants that sold bonds worth Rs 1.63 lakh crore in April and May. Last fiscal, the comparative statistics stood at Rs 73,286 crore, while the first two months of FY19 saw bond sales of Rs 44,062 crore, data compiled by JM Financial showed.

“Companies looked to be cash-ready in an economic crisis,” said B Prasanna, group head for global markets sales, trading and research at ICICI Bank. “Softer rates and abundant liquidity with TLTRO deployment prompted companies — both regular and infrequent issuers — to use this opportunity via primary issuances to prepare themselves for a post-lockdown business scenario.”

The Reserve Bank of India extended a liquidity window via Targeted Long Term Repo Operations (TLTRO), allowing banks to borrow money at cheaper rate only to lend to companies seeking funds.

HDB Financial, L&T Finance, Shriram Transport, Bajaj Finance, Mahindra Finance, Aditya Birla Finance and Indiabulls Housing Finance were some of the NBFCs that sold bonds.

The average spread or differential between top-rated corporate bonds and government bonds is now at 90 basis points compared with 120 basis points in March.

Corp Bond Issues More than Double in April- May

“Bond sales have surged as companies attempted to raise cheaper money for the future,” said Ajay Manglunia, MD and head of fixed income at JM Financial. “There was pent-up demand from the last quarter of the last financial year. Local primary bond sales were lacklustre in March, which is otherwise a busy month. RBI rate actions and liquidity measures helped end the dry spell.”

Since March 27 this year, the RBI collectively cut repo, the rate at which banks borrow short-term money from the central bank, by 115 basis points to a record low of 4%.

“Flush with TLTRO funds, banks were keen to invest in branded companies, which tapped the opportunity to raise relatively cheap money,” said Ravendra Balivada, head — investment advisors, HDFC Securities. “Creditworthy companies benefited the most as banks were wary of investing in lower-rated debt.”

The average spread between top-rated corporate papers and double-A rated papers is now at 300 bps versus 330 bps in March.
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