Corporate bond issue dips in June, spread widens
Corporate bond issuances aggregated to Rs. 1.07 lakh cr, 10% higher than Rs. 97,316 cr last year.
The volume was Rs 33,547 crore compared with Rs 48,540 crore seen in the preceding month, according to PRIME Database.
The spreads of AAA rated corporate bonds over government securities widened across maturities in June. The spreads on the one year paper widened by 20 basis points, three year corporate bond widened by 26 bps and 5 year by 19 bps. The AAA rated 10 year corporate bond spreads also widened by 7 bps by the end-June’19 over end-May’19, reflecting the fact that investors perceived were looking safer bets amid rising credit risks.
The weighted average cost of bond issuances in the primary market however dipped 21 bps to 8.28 per cent in June from month ago 8.49 per cent, as Reserve Bank of India ensured higher liquidity flow into the system. Liquidity moved into a surplus in June after being in deficit since September 2018.
Banking and term lending institutions accounted for the highest share of corporate bond issuances at 29 per cent followed by roads and highways (22 per cent), financial services and investment (19 per cent), housing finance (9 per cent), power generation and supply (8 per cent), housing/civil construction/real estate (7 per cent), cement and construction (1 per cent) among others, the report said.
All the issuances in Jun’19 were via private placements. In Q1 FY20, the corporate bond issuances aggregated to Rs. 1.07 lakh crore, 10 per cent higher than Rs. 97,316 cr in the corresponding period of last year.
The commercial paper market also saw thinner volume: total issuances in June amounted to Rs 50,950 crore, 61 per cent lower than issuances of month ago and 65 per cent lower than the issuances in the corresponding month of last year. The cost of borrowing via commercial papers declined substantially by 66 bps to 6.82 per cent in June compared with 7.48 per cent a month ago, CARE Ratings said in a report.
The central government raised Rs 68,000 crore by way of market borrowings or auction of government securities, which was Rs 17,000 crore or 20 per cent lower than the borrowing in the previous month (Rs 85,000 crore in May) and 42 per cent higher than the Rs 48,000 crore raised year ago (June).