Corp bond issuances fall 51% in April-July on fewer PSU issues

Most state-owned entities stayed away from the market due to the liquidity buffer and support from the government.

By Manish M Suvarna

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Total corporate bond issuances fell 51% to Rs 1.25 lakh crore between April and July, compared to the year-ago period, as fund-raising by state-owned entities slowed down. According to the Sebi website, overall issuances of corporate bonds in July were down 37.3% YoY and 28.5% on a sequential basis to Rs 30,080.86 crore.

Of the overall issuance between April and July, 65% of the amount was raised by housing finance companies, banking and companies involved in other financial services. The rest was raised by companies involved in petrochemical, automobiles and civil constructions, among others.

Most companies, which were active in the market during April and July, issued bonds with maturity ranging between 1 and 5 years owing to steady demand in that segment by mutual funds, pension funds, etc. For the past few months, mutual funds have been witnessing steady inflows in shorter-end funds like liquid funds and short term funds.

Despite the fall in issuances, yields on corporate bonds were not impacted due to steady demand from investors. However, a marginal rise in yields was witnessed in July on bonds issued by NBFCs and HFCs. Broadly, the yields on 10-year corporate bonds ranged between 6.90% and 7.00%.

In coming months, market participants expect issuances to gain momentum as some companies may raise funds to take advantage of lower rates. “Corporate bond issues are likely to pick up again in coming days as the economy revives,” a fund manager with a mid-sized fund house said.

“The fall in issues is a combination of factors. One is lower fund requirements of corporates because everyone accumulated extra funds last year and issuances enhanced last year due to LTRO and TLTRO, and significant slowdown in public sector issues in this fiscal due to better funding from the government,” said Mahendra Kumar Jajoo, chief investment officer, fixed income, Mirae Asset Investment Managers (India).

Higher borrowings in FY21 by most companies were mainly because of the RBI’s special liquidity measures like Long Term Repo Operations (LTRO) and Targeted Long Term Repo Operations (TLTRO), which attracted companies to the debt market for raising funds owing to the conditions associated with these liquidity measures.

Under this scheme, the liquidity availed by banks were deployed in specific sectors through debt instruments such as corporate bonds, commercial papers and NCDs. TLTROs provided cheaper funds to banks which they invested in corporate debt for better returns. Due to this, issuances of corporate bonds crossed Rs 2.50 lakh-crore mark in July-September FY21.

According to market participants, issuances have fallen also due to support by the government to revive the economy. Most state-owned entities stayed away from the market due to the liquidity buffer and support from the government.