Indian corporate bonds still a big draw with FIIs

MUMBAI: Foreign institutional investors are showing no signs of apathy for Indian corporate bonds although the Reserve Bank of India has barred them from investing below three-year maturities. German lender Deutsche Bank is believed to have bought Rs 375 crore threeyear bonds issued by the triple-A rated National Housing Bank on Friday, three people familiar with the matter told ET.

An email sent to the foreign lender seeking comments on the matter remained unanswered at the time of going to the press. The regulator for housing finance companies has tweaked the latest issue structure for better pricing. It was seen issuing bonds below the three-year maturities before the RBI notification.

NHB has now offered 8.20% rate with a three-year term unlike the usual below three-year maturities. NHB has initially planned a core issue size of Rs 250 crore with an oversubscription up to Rs 1,250 crore, dealers said. Below threeyear maturities yields have already gone up by about 30 basis points in absence of overseas investors.

Issuers, too, are shying away from shorter-term bonds. After the RBI ban, domestic institutions may claim at least 25-30 basis points higher rate. This may have prompted the issuer to go for a three-year maturity which is unbecoming of its nature, said one senior official from the investment banking arm of a large bank.

Due to bulk-buying, overseas investors always enjoy an edge over domestic investors in terms of pricing. The spread between below three-year and three-five year maturities has also contracted to 0-5 basis points from 10-20 bps earlier.

“If domestic investors like mutual funds and insurers demand higher rates, bond issuers would start borrowing three-five year money than one-tothree year,” said Ajay Manglunia, head, fixed income, Edelweiss Securities. Many foreign investors undertake carry trades by borrowing cheap dollars and investing in Indian bonds with a far higher yield. These are typically short-term, unhedged bets.