Corporate bond sales take a hit on rising yields

Mumbai: Corporate bonds, the preferred funding route for India’s long-term projects, appear to be losing sheen with borrowers as yields head north in the world’s fastest-expanding major economy.

For the first time since the NDA government came to power, bond sales have fallen about 10 per cent year-on-year in FY18, reflecting weak investor appetite. During 2017-18, companies sold bonds worth Rs 5.75 lakh crore compared with about Rs 6.41 lakh crore a year earlier, show data compiled by Edelweiss Finance.

The government still needs to do more to expand the bond market to help finance developmental projects running into thousands of crores.


“This was a bit disappointing year for corporate bonds after a long time,” said Ajay Manglunia, executive vice president at Edelweiss Finance. “With surging yields, investors could not find any extra incentive to buy corporate bonds. On many occasions, deals were scrapped as borrowers were not comfortable with bids offered by investors. In FY19, corporate bonds could still turn attractive if the authorities came up with practical solutions.”

During the year, state-government bonds offered 10-20 basis points higher rates than debt offered by top-rated public sector companies. Investors naturally went with state sovereigns that are perceived to be better bets than companies.

“Many companies refrained from issuing papers in a sluggish economy, dented by the ripple effects of demonetisation and GST implementation,” said Kumaresh Ramakrishnan, CIO-fixed income, DHFL Pramerica Mutual Fund. “Although we were keen to invest in corporate bonds, we could not find reasonable offerings. But it could be a one-off year as FY19 should see the resumption of corporate bond issuances.”

During the financial year, the benchmark yield surged about 70 basis points despite not a single rate increase by the Reserve Bank of India. In between, the government took many steps to rev up the corporate bond market.

“The corporate bond line-up should go up next financial year, as the government’s budget announcement of more debt funding through corporate bonds gets into the implementation phase,” said Ashish Ghiya, MD, Derivium Tradition (India). “Further, bank balance sheet issues could continue-…pushing more corporates to bonds. In the past, we have seen longer-term projects like renewable energy and road infra companies increasingly tapping the market.”

Non-conventional energy companies such as ReNew and Greenko have already sold bonds. Also, companies engaged in building highways and backed by road-toll collections are wooing bond investors. In the entire corporate bond market, top-rated companies are extending their dominance as 62 per cent of the issuers belonged to AAArated categories, compared with 56 per cent in FY17.