Indian firms’ rupee bond frenzy to fade

mumbai — Rupee bond issuance frenzy that saw volumes in the corporate bond market nearly double in five years is seen fading in 2018, after government’s plan for additional borrowing sent company bond yields to 16-month highs.

HDFC Bank and Trust Group see only single digit growth in volumes this year after four straight years of double-digit growth that was supported by an accommodative monetary policy. ICICI Securities Primary Dealership expects Indian companies to sell about 6 trillion rupees ($94.4 billion) of local-currency bonds this year, lower than the record 6.4 trillion rupees of notes issued in 2017.

“At these rates, companies may not opt to borrow from bonds and I expect coming quarters to be less busier than previous as there will be some crowding out due to extra government borrowing,” said Sandeep Bagla, associate director at Trust Group in Mumbai.

Bagla sees companies either choosing loans or tapping overseas markets to meet their funding needs.

The average yield on AAA-rated three year corporate notes rose 40 basis points last year, snapping three straight years of declines, according to data compiled by Bloomberg. That’s just 41 basis points less than three-year lending rate of 8.1 per cent at State Bank of India. This gap was as wide as 186 basis points at the start of 2017. The yield on top rated three-year bonds was at 7.68 per cent on Tuesday, after touching a 16-month high of 7.73 per cent on December 28. — Bloomberg