India corporate fundraising jumps ahead of second half, easing yields aid - analysts

·2-min read
A man counts Indian currency notes inside a shop in Mumbai

By Dharamraj Lalit Dhutia

MUMBAI (Reuters) - Indian corporates as well as banks are flooding the debt market to raise funds ahead of second half of this fiscal year to avoid crowding, while also taking advantage of recent fall in yields, analysts said.

"Yields have come down after jumping in the first quarter and could rise in the second half which would see higher supply not only from the central and state governments, but also from other state-run companies," said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.

Indian companies and banks have raised around 350 billion rupees ($4.39 billion) from Sep. 1 to Sep. 7, slightly short of the 450 billion rupees raised in August, still higher than the 335 billion rupees per month raised in April-July, data compiled by Reuters showed.

"We have seen AAA-rated big names tapping bond market, and of late the quasi-capital also," V. Lakshmanan, head of treasury at Federal Bank said, referring to state-owned banks and financing companies.

"If we look at the corporate bond spreads, they are quoting at nearly government bond yields levels," he added.

State-owned Power Finance Corp raised 40 billion rupees through 10-year bonds at 7.42% yield, while State Bank of India and HDFC Bank issued perpetual bonds to raise an aggregate 100 billion rupees at 7.75% and 7.84%, respectively.

Other AAA-rated companies like Housing Development Finance Corp, Indian Oil Corp and Small Industries Development Bank of India (SIDBI) have also raised capital this month.

While SIDBI raised three-year and six-month money at 7.23%, SBI’s marginal cost of lending rate for three-year tenor stands at 8.00%.

"There is decent appetite from mutual funds, especially for good quality names," said Pankaj Pathak, fixed income fund manager at Quantum Mutual Fund.

A large part of the demand has also been due to sudden repricing of yields, he said, noting that there has not been much redemption pressure so far this year, which is also encouraging funds to invest in corporate debt.


Meanwhile, top-rated non-banking financial companies have also stepped up issuance of zero-coupon bonds, which helps companies manage their cash flows in a better manner.

Zero-coupon bonds do not pay any interest during the tenure of the security and are issued at a discount to face value. At the maturity of the paper, investors receive the money along with an interest.

"For investors, this sort of investment is also beneficial when the interest rates are high, as there is no re-investment risk during the life period of the bond," Rockfort’s Srinivasan added.

AAA-rated non-banking financial companies like L&T Finance and Tata Capital Financial Services and Tata Motors Finance have raised funds via this route in the last few sessions.

($1 = 79.7400 Indian rupees)

(Reporting by Dharamraj Lalit Dhutia; Editing by Dhanya Ann Thoppil)