The Hindu Business Line : Corporates swamp the bond market

Mumbai, Nov. 19 At least 10 companies, including public sector undertakings, are expected to tap the corporate bond market over the next two months to take advantage of the lower interest rates and surplus liquidity, say bankers and brokers.

A corporate rated “AAA” can raise fund through bonds at an yield of 8-8.2 per cent, while one rated `AA+ ‘may have to pay 50-60 basis points more. As against this, a bank loan would be available at 10 per cent or higher, said a bond dealer.

Companies waiting to hit the market include Reliance Industries Ltd, Power Grid Corporation of India, Indian Railway Finance Corporation and Tube Investments, said merchant banking sources.

Mr B. Prasanna, MD and CEO, ICICI Securities Primary Dealership, said that the appetite for bonds has picked up post the monetary policy announcement. “Issuers feel if they raise money now they will get good bids. People want to beat the hike in rates. The view is that the RBI may hike rates post-January,” he said.

Tata Chemicals (Rs 150 crore), Power Finance Corporation (Rs 1,100 crore) and NPCIL (Rs 2,000 crore) are among those raised money through bond issues recently.

According to Mr Krishnan Sitaraman, Director, Crisil Fund Services, the amount to be borrowed by the government in the second half of this fiscal is lower than the first half; therefore, there is much more room available for the private sector. Also, the liquidity in the market is currently over Rs 100,000 crore. Besides, there is appetite in banks for investment in bonds as deposit growth is at 20 per cent, but credit growth is in single digits. That is why it is a good time for corporates to tap the market,’ he said.

Two-thirds of the government borrowing is complete and only one-third is left in the second half of the fiscal. Therefore, there will be no ‘crowding out’ effect.

Analysts also expect increased investment demand from mutual funds and insurance companies, which are sitting on huge cash surpluses, another reason for corporates rushing to the bond markets.