India sees $3bn debt fundraising rush as yields slump after RBI moves, bankers say
- Corporate bond yields rise to their highest level in seven years in May
MUMBAI: Indian companies are rushing to raise short-term debt after the central bank’s measures to support the rupee triggered a sharp fall in borrowing costs, four merchant bankers said.
Companies, led by non-banking financial firms, are raising more than 310 billion rupees ($3.24 billion) through up to five-year bonds this week, the bankers said. The supply is one-third of what was raised in April and May, according to Reuters data.
The Reserve Bank of India on Friday announced a raft of measures aimed at drawing dollars into the country, including raising subsidised deposits and incentivising banks and state-run companies to raise funds overseas.
This has pushed corporate borrowing costs lower by 40-45 basis points, per LSEG benchmark ‘AAA’-rated corporate bond yields of up to five years, while the spread over government bonds has narrowed.
Short-end Indian debt gains as RBI dollar measures spur buying
Corporate bond yields had risen to their highest in seven years in May.
A rise in overseas borrowings could reduce the need for local debt supply, leading to a rally in bonds below five years, said Ajay Marwaha, head of fixed income markets at global wealth firm Nuvama.
State-run REC raised three-year funds at a coupon of 7.34% earlier this week, much lower than prevailing levels in the secondary market. NABARD, another state-run financial institution, raised funds for three years at 7.34% after cancelling a similar issue in May where rates could have touched nearly 8%.
Other major non-bank lenders lining up debt sales include Bajaj Finance, Muthoot Finance, Bajaj Housing Finance and L&T Finance, with planned issuances of 85 billion rupees, 27.5 billion rupees, 20 billion rupees and 15 billion rupees, respectively.
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Despite the recent rally in bonds, investor appetite remains strong on expectations of further gains.
“Investors with a more than 18-month investment horizon are looking at corporate bond funds that present an attractive investment opportunity from a relative risk-reward perspective,” said Puneet Pal, head of fixed income at PGIM India Asset Management.
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