India sees $3 billion debt fundraising rush as yields slump after RBI moves, bankers say

Indian companies are rushing to raise short-term debt after the central bank's measures to support the rupee triggered a sharp fall in borrowing costs, four merchant bankers said.

Companies, led by non-banking financial firms, are raising more than 310 billion rupees ($3.24 billion) through up to five-year bonds this week, the bankers said. The ‌supply is ⁠one-third ⁠of what was raised in April and May, according to Reuters data.

The Reserve Bank of ​India on Friday announced a raft of measures aimed at drawing dollars into the country, ​including raising subsidised deposits and incentivising banks and state-run companies to raise funds overseas.


This has pushed corporate borrowing costs lower by 40-45 basis points, per LSEG benchmark 'AAA'-rated corporate bond yields of up to ⁠five years, ‌while the spread over government bonds has narrowed.

Corporate bond ​yields had ​risen to their highest in seven years in May.

A rise ⁠in overseas borrowings could reduce the need for local ​debt supply, leading to a rally in bonds below ​five years, said Ajay Marwaha, head of fixed income markets at global wealth firm Nuvama.

State-run REC raised three-year funds at a coupon of 7.34% earlier this week, much lower than prevailing levels in the secondary market. NABARD, another state-run financial institution, raised funds for three years at 7.34% after ‌cancelling a similar issue in May where rates could have touched nearly 8%.

Other major non-bank lenders lining up debt sales include Bajaj Finance, Muthoot Finance, Bajaj ⁠Housing Finance and L&T Finance, with planned issuances of 85 billion rupees, 27.5 billion rupees, 20 billion rupees and 15 billion rupees, respectively.

Despite the recent rally ​in bonds, investor appetite remains strong on expectations of further gains.

"Investors with a more than 18-month investment horizon are looking at corporate bond funds that present an attractive investment opportunity from a relative risk-reward perspective," said Puneet Pal, head of fixed income at PGIM India Asset Management.