Borrowers are awaiting a possible moderation in the central bank governor’s comments on monetary policy next week, after promising not to “shock” the market with abrupt rate changes.
Companies raised just ₹31,712 crore in April and May this year compared to ₹70,550 crore in the same period last year, according to data from analytics firm Prime Database. These were mainly bonds raised via private placements, with a small portion sold publicly.
“Corporate borrowing is off to a slow start this year,” said Shailendra Jhingan, chief executive of Primary Dealership. “The main short-term reason is the increase in volatility after the off-cycle rate hike by the RBI in May and the sharp rate hike that hurt market sentiment,” Jhingan said. “Investment requirements continue to be lukewarm.”
Another reason is that bank loans become cheaper as yields rise. The benchmark returned 7.42% on Wednesday, while regular home loans are available at 7.05-7.45% after the latest rate hike. Usually home loans are more expensive or on par with the reference document.
“The yield curve continues to be steep and therefore bank lending remains the preferred route for corporate fundraising,” Jhingan said.
Moreover, the cycle of deleveraging that started a few years ago continues, with companies reducing their high level of debt.
“Companies appear to be preserving cash amid an ongoing global crisis,” said Ajay Manglunia, Managing Director – Debt Capital Markets,
. “No one is keen on going for new capex at the moment unless the geopolitical uncertainties are settled.”
“Once the next RBI policy sets out a clear rate path, investors are likely to revive the investment appetite for bonds,” he said.
The spread or gap between triple A-rated corporate paper and similar benchmark series has narrowed to 35 basis points now from 48 basis points in April before the off-cycle rate hike. The shortage of corporate bonds slowed the pace of rising yields.
The central bank raised the repo rate on May 4 by 40 basis points to 4.40%. However, bond sales are expected to increase in the second half of the year. There could be a good period of flow as India continues to be the fastest growing economy despite all the hurdles, dealers said.
The nation’s largest triple-A rated mortgage lender
raised ₹7,742 crore in a single round on May 24, apparently placing the bonds with India.
In addition, large companies, including
forecast bond sales, which are expected to come after the RBI’s June bi-weekly policy. Traditional sellers like PFC and have been conspicuous by their absence over the past two months.