Corporate bonds

Record buyback of corporate bonds not a problem

“Repayment of corporate bonds is routine and not all companies necessarily renew loans. The BFSI sector, which is engaged in lending business, may be eager to borrow,” said Ajay Manglunia, MD and Head of Institutional Fixed Income at JM Financial.

By Manish M Suvarna

Around Rs 5.6 lakh crore of corporate bonds are due to mature in 2022, nearly 20% more than redemptions due in 2021. According to data compiled by Prime database, the amount owed to the maturity last year was Rs 4.7 lakh crore, while it was Rs 5.4 lakh crore in 2020.

Corporate bonds include those issued by companies and banks.

The majority of Rs 1.6 lakh crore is owed by non-bank financial companies or financial services companies, accounting for 29% of the total amount owed for reimbursement. Public sector banks and manufacturing or service companies must repay Rs 1.20 lakh crore or 22% of the total and Rs 1.23 lakh crore or 22%, respectively.

“Repayment of corporate bonds is routine and not all companies necessarily renew loans. The BFSI sector, which is engaged in lending business, may be eager to borrow,” said Ajay Manglunia, MD and Head of Institutional Fixed Income at JM Financial.

Market participants said the corporate bond-aligned buyback may be the largest in years. However, since interest rates could rise, they expect most companies and banks to pay off their bonds instead of rolling them over.

In December 2021, Public Sector Banks (BSP) successfully rolled over their papers at a lower or similar coupon than the previous issue. All of these bonds had a call option expiring in the current year.

Five public lenders – Bank of Baroda, State Bank of India, Canara

Bank, Punjab National Bank and Union Bank of India – together raised nearly Rs 24,471 crore through AT1 bonds in FY22, according to ICRA data. Previously, ICRA had estimated that around Rs 20,505 crore of AT1 bonds from PSBs and Rs 7,925 crore from private banks were due for a call option with a majority of Rs 19,750 crore due on the second. half of the current fiscal year.

Experts say banks are likely to repay their papers due in 2022 given the high excess liquidity in the banking system; only those with weak balance sheets can reverse their papers.

Bond brokers say companies would have no trouble raising funds since investors have a good amount of cash on hand and inflows into mutual fund debt programs are also strong. “Banks and investors have plenty of cash and cash inflows and they would be keen to deploy the funds in good names. We could see emissions increase by 15-20%,” Manglunia said.

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