India Inc gets bond shock, fund-raising plans go awry

SAIL, GIC Housing Finance defer bond issuances amid rising yields

Rising bond yields over the last two weeks have caused Indian companies to defer their fund-raising plans.

The rising yields have dampened the sentiment among investors. According to issue arrangers, Steel Authority of India (SAIL) and GIC Housing Finance are among companies that were planning to raise funds through private placement of bonds but have deferred the issuances after seeing the response. The yield on the 10-year benchmark government bond has hardened by 19 basis points in the last two weeks in line with global debt market yields, over concerns of rising oil prices. A weaker rupee and foreign fund outflows from the domestic share and debt markets have also been hurting.

"Due to the recent volatility of markets and upsurge in yields, companies are postponing their bond issuances. The appetite of investors has got impacted. GIC Housing Finance and SAIL postponed their issuances. Both were planning to raise three-year paper but they found the bid levels high for raising funds," said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.

  SAIL was planning to raise Rs 1,500 crore by issuing three-year bonds at a coupon rate ranging 8.25 to 8.30 per cent while the market demand was in the range of 8.50 to 8.70 per cent, due to which they backed out. GIC Housing Finance was planning to raise Rs 100 crore by issuing three-year paper. It backed out after learning about the high coupon rates demanded.

"We have hardly heard about issuances in May this time. Most of these companies may now decide to come up with bond issuances in June if the Reserve Bank of India (RBI) cuts the repo rate further," said Arvind Konar, head of fixed income, Almondz Global Securities.

The yield on the 10-year benchmark government bond, quoted at 7.86 per cent at the end of April, has climbed up to 7.98 per cent as of Friday's close. Also, foreign investors have turned net-sellers of domestic debt. Tracking the rising government bond yields, corporate bond yields have climbed up with the yield on the 'AAA'-rated 10-year public sector unit paper closing at 8.34 per cent on Thursday, compared with 8.28 per cent on April 30.

"In corporate bonds, spreads (or the difference between the yields of government bonds and corporate bonds of similar maturity tenure) will have to become more attractive for investors. These will become attractive when the spreads would be in the range of 60-70 bps. Currently, these are in the range of 30-40 bps in the 10-year segment," said Badrish Kulhalli, head of fixed income at HDFC Life.