Indian state-run firms plan Rs 34,000 cr bond raid as yields drop: Bankers

Indian state-run companies plan to raise as much as 340 billion rupees ($4.19 billion) via the debt market over the next two weeks to capitalise on easing bond yields and avoid the fiscal year-end liquidity crunch, merchant bankers said. Indian bond yields have eased this month, with the benchmark 10-year yield dipping 10 basis points (bps) this week alone, as cooling domestic and U.S. inflation has raised the likelihood of an imminent end to the interest rate-hike cycle.

"Since yields have eased slightly, companies are going aggressive in their fundraising exercise, and also they would not want to keep a larger chunk towards the end of the fiscal as liquidity is likely to tighten," said Ajay Manglunia, managing director and head of investment grade group at JM Financial.

Earlier this week, state-run REC raised more than 50 billion rupees through a combination of over three-year and over 10-year bonds, an offering that Indian Railway Finance Corp is set to replicate.

Financial institutions NABARD and SIDBI will aim to raise an aggregate of 110 billion rupees through shorter tenor bonds, while Housing and Urban Development Corp is also in talks with bankers and investors to line up issuances.
State Bank of India, the country's largest lender, got board approval earlier this week to raise 100 billion rupees through 15-year infrastructure bonds. "Large bond issuances are expected to continue from state-run companies as credit growth accelerates," said Venkatakrishnan Srinivasan, founder and managing partner of debt advisory firm Rockfort Fincap.

"As banks are expected to increase their lending rates further, all these companies are preferring the bond market where funds are still available at attractive and compressed levels." Sanjay Pawar, a fixed income fund manager at LIC Mutual Fund, said companies are also aiming to lock rates before the Union budget, due on Feb. 1, as the market expects the government to borrow more than it did last year. DEMAND OUTLOOK While longer-duration bonds will be absorbed by pension funds and insurance companies, mutual funds may chase shorter-term issuances, albeit at a higher yield, merchant bankers said.

"Going ahead, liquidity will tighten, so sailing through of large issues may push the spreads," said VRC Reddy, treasury head of Karur Vysya Bank. The spread between the corporate bond yield and the five-year government bond yield is around 40 bps, and around 25 bps on an annualised basis for the 10-year yield. "Bond supply from both banks as well as companies is picking up," said Archita Joshi, fixed income adviser at Motilal Oswal Financial Services.

"The three-year to five-year maturity corporate bonds will offer better risk-reward." Company name Tenor Quantum in Bidding billion rupees status REC 3-year and 6 months 30 Done REC 10-year and 19 days 20.04 Done NABARD 5-year and 15 days 60 Friday SIDBI 3-year and 23 days 50 Monday IRFC 3-year and 3 months 25 Monday IRFC 10-year and 3 months 25 Monday HUDCO 3-year to 5-year 30 Likely next week SBI 15-year infra bonds 100 Likely next week