Large companies are stepping up rupee bond issuances after the RBI hiked the repo rate by 25 basis points on October 7. Firms like SIDBI and NABARD raised funds as bank loans got expensive. Expert Venkatakrishnan Srinivasan said, “The domestic bond market remains an important funding avenue for highly rated borrowers.”
Shrinking liquidity surplus in the banking system, rising Government Securities yields and bank lending rates, and the possibility of further monetary tightening is prompting highly rated large companies, mainly in the non-banking financial company space, to step up domestic rupee bond issuance for raising funds.
After the RBI’s rate setting panel hiked the repo rate by 25 basis points from 5.25 per cent to 5.50 per cent, and changed the monetary policy stance from “neutral” to “calibrated tightening” on October 7, there has been a flurry of bond issuances by companies which are rated “AA+” and above.
Companies that raised more than ₹1,000 crore via non-convertible debentures since the repo rate hike include SIDBI (₹5,176 crore for 38 months at a coupon rate of 8.05 per cent), NABARD (₹3,279 crore for 39 months at 8.13 per cent), L&T Finance (₹1,500 crore for 35 months at 8 per cent), Sundaram Finance (₹1,210 crore for 48 months at 8.53 per cent), REC Ltd (₹4,000 crore for 60 months at 8.30 per cent), Aditya Birla Housing Finance (₹1,200 crore for 36 months at 8.70 per cent) and Bajaj Finance (₹1,262 crore for 60 months at 8.70 per cent), per NSE data.
“If bank loans become relatively more expensive, highly rated large companies may increasingly consider domestic rupee bonds as an alternative. October presents a different environment: yields are higher, liquidity is tighter, and investors are demanding greater compensation for duration and credit exposure.
“Nevertheless, recent issuance activity indicates that the domestic bond market remains an important funding avenue for highly rated borrowers,” said Venkatakrishnan Srinivasan, Bond Market Expert and Founder & Managing Partner, Rockfort Fincap LLP.
At the current juncture, bank loans on an annualised basis will be about 50-100 basis points higher for a “AAA” rated borrower vis-a-vis bonds in the wake of the repo rate hike and expectations of more hikes, and narrow liquidity surplus.
Indicative yields
He observed that indicative yields on five-year AAA-rated PSU (Public Sector Undertaking) bonds are around 8.25–8.35 per cent, while the reported coupons on Bajaj Finance and Aditya Birla Housing Finance issuances (on Thursday) are around 8.70 per cent or higher. These levels illustrate the extent of repricing across issuer categories, though the instruments must be compared at equivalent maturities and on a consistent yield basis.
Venkatakrishnan assessed that the current conditions may encourage further issuance by highly rated PSUs, NBFCs, banks, housing finance companies, InvITs and REITs.
He opined that bond markets frequently adjust ahead of monetary policy decisions as expectations change. Banks, by contrast, may adjust deposit and lending rates with different lags. So, borrowers should not assume that waiting until after the next policy announcement will necessarily deliver cheaper bank funding or that issuing immediately guarantees the lowest cost .
Meanwhile, NABARD is believed to be eyeing a ₹6,000 crore fund mobilisation via a 5-year NCD issuance, according to market sources.