Corporate bond issuance at 7-year high in Sept

Mumbai: Corporate bond issuances through the private placement route touched the highest in the past seven financial years in September, owing to a fall in borrowing costs, comfortable liquidity and bond buying by foreign institutional investors (FIIs). The latest data from the Securities and Exchange Board of India (Sebi) show companies raised around Rs 58,000 crore in September through private placement of bonds, the highest raised in a single month since FY08.

According to estimates of issue arrangers, the borrowing cost of bonds dropped by 40 basis points in September, which encouraged corporates to resort to bond raising. The coupon rate for these bonds works out to be 9-10 per cent depending on the credit rating of the corporate.

A senior official with IFCI said: "We can borrow through corporate bonds for a longer tenure. This allows me to have a comfortable position with respect to asset-liability. When it comes to borrowing through bonds, the coupon payments are usually semi-annual or annual. In case of bank loans, we have to pay interest monthly."

IFCI's public issue of bonds opened on Monday and the company plans to raise up to Rs 2,000 crore. IFCI bonds are available in the tenures of five, seven and 10 years, while the coupon rate per annum ranges between 9.40 per cent and 9.90 per cent. There is an additional incentive of 0.10 per cent per annum over coupon rate applicable for retail individual investors and high net-worth individuals (HNIs).

Issue arrangers believe corporates such as IFCI would have probably paid interest rates in the range of 10.25-11 per cent if they were borrowing from banks. The cost of raising funds through private placement route works out to be cheaper than a public issue. However, companies still decide to go for the public issue, as they want to broaden their investor base by including the retail investors and HNIs.

Even though there have been 312 issues in September, the demand for bonds was intact. "FIIs started buying corporate bonds since the G-sec limit was almost full. Everybody is expecting softer interest rate scenario due to which bond issuances may continue to happen," said Ajay Manglunia, senior vice-president (fixed income) at Edelweiss Securities.

In the current financial year, many non-banking financial companies (NBFCs) which are key bond issuers stayed away from the market. "The regular borrowers which are primarily NBFCs had not borrowed much in the first quarter of this fiscal (FY15) due to anomalies in the Companies Act. These anomalies were later rectified due to which they started borrowing again," said Arvind Konar, head of fixed income at Almondz Global Securities. Sebi data show that during April-September of FY15, corporates raised Rs 1,45,290.79 crore compared to Rs 1,42,818.82 crore in the same period in FY14.

Liquidity in the system remained comfortable in September after the Reserve Bank of India (RBI)'s revised liquidity framework came into effect where the central bank said it would conduct more frequent term repos. For most of the days during September, the weighted average call money rate was below eight per cent. RBI wants the call money rate to hug the repo rate, which is at 8 per cent and earlier in FY15, the rate had even breached 9 per cent.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.