Indian short-end corporate bond issuances surge as yields fall

By Dharamraj Dhutia and Bhakti Tambe

MUMBAI (Reuters) - Indian companies, especially shadow lenders, may continue to flock to the corporate bond market in the near term to raise funds following a decline in yields, analysts said on Tuesday.

"Yields have corrected sharply as views regarding interest rates have changed, and before the next policy meeting, issuers are rushing to lock funding at lower costs," said Ajay Manglunia, managing director and head of Investment Grade Group at JM Financial.

Non-banking financial companies (NBFCs) Housing Development Finance Corp, Sundaram Finance, Aditya Birla Finance, HDB Financial Services aim to raise over 125 billion Indian rupees ($1.54 billion) by issuing two-year to five-year bonds this week.

The line up of issuances comes on the back of Bajaj Finance raising 51 billion rupees through three-year notes on Tuesday, and SIDBI raising funds last week via more-than-three-year bonds at a 7.47% coupon, 28 basis points lower than what it had paid for a similar issue in mid-October.

"Since a lot of issuers were postponing issuances in a volatile, rising interest rate scenario, they see this fall (in yields) as the right time to capture unmet bond demand and are coming back to the market," said Nagesh Chauhan, head of debt capital market at Tipsons Group.

Indian corporate bond yields have eased around 10-15 bps in the last week, in line with the fall in government yields, as softer inflation data in India and the United States have raised bets of a policy pivot by central banks.

The Reserve Bank of India has raised its key lending rate by 190 basis points to 5.90% since May, with the next decision due in December.

Market participants expect the issuance pattern to remain in favour of shorter tenors.

"The trend will remain biased towards short-term borrowings, majorly two-year to three-year bucket, as longer-tenure bond demand is still uncertain and only for selected state-run companies," Tipsons Group's Chauhan said.

Mutual funds, one of the largest holders of corporate bonds, are receiving inflows towards short-term debt schemes where they are looking to park their corpus, spurring more such issuances.

"There was not much supply in corporate bonds, and mutual funds have to invest, so they are chasing whatever limited spreads they are getting in these NBFC bonds," said Raju Sharma, head fixed income at IDBI Mutual Fund.

($1 = 81.3200 Indian rupees)

(Reporting by Dharamraj Dhutia and Bhakti Tambe; Editing by Dhanya Ann Thoppil)