India state-run firms tap bond market for $2 billion before funding costs rise
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With sizable supply lined up, investors say the success of the bond sales will hinge on the firms’ willingness to accept lower prices.
Corporate bonds have slipped in tandem with government notes, making fundraising expensive for firms and squeezing their margins.
“The pickup in issuance suggests companies have stopped waiting for borrowing costs to decline and have accepted that yields are unlikely to soften materially in the near term. They are choosing to access the market despite the high rates,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.
Top-rated state-owned firms, including National Bank for Financing Infrastructure and Development (NaBFID), Housing and Urban Development Corp (HUDCO), Small Industries Development Bank of India (SIDBI) and Power Finance Corp, will issue bonds this week, merchant bankers said.
“The pickup in issuance suggests companies have stopped waiting for borrowing costs to decline and have accepted that yields are unlikely to soften materially in the near term. They are choosing to access the market despite the high rates,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.
The companies did not respond to emails seeking comment.
While NaBFID plans to issue 10-year bonds, HUDCO will issue perpetual bonds with a 10-year call option. SIDBI and PFC will issue notes with maturities of up to five years. SIDBI and PFC withdrew their shorter-duration bond sales in December after investors sought higher yields. PFC’s issue will be closely watched following a proposed merger with REC.
“While interest exists for such issues, the key determinant will be the pricing,” said Nikhil Aggarwal, founder & group CEO at Grip Invest, an online bond trading platform.
He noted that PFC’s December bond sale was pulled over pricing. With interest rates on hold and the yield curve moving up, investors may demand higher yields.
Bond yields move inversely to prices.
LSEG benchmark ‘AAA’-rated corporate bond yields are higher compared to the end of December, though they have retreated from recent highs hit immediately after India’s federal budget earlier this month.
Investors expect the central bank to hold rates, and alongside higher government borrowing, rising inflation expectations and liquidity uncertainty, that is reinforcing a “higher-for-longer” rate view, Srinivasan said.
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