Corporate bond issuances fell as Covid-19 pandemic hit companies

Analysts says it's a learning experience, market expected to do better in 2022

Corporate bond issuances dropped significantly in calendar year 2021 as companies stayed away from fresh capacity expansion in an economy still suffering from the pangs of the pandemic, while interest rates climbed up.

During the calendar year, corporate bond issuances by private companies as well as public sector units amounted to Rs 5.87 trillion compared with Rs 7.87 trillion in 2020. It was Rs 7.04 trillion in 2019, according to data from AK Capital, an arranger of primary bond issuances.

There were 1,466 issuances in the corporate bond space in 2021, compared with 2,522 issuances in 2020 and 2,482 a year before that.

The reason for softer issuances could be traced back to the pandemic, which caused supply-side constraints and other micro and macroeconomic concerns. It was a learning experience for the markets as well, and the bond market is expected to do better in 2022, according to Pankaj Agrawal, director at A K Capital Services.

“Domestic bond yields are likely to rule around elevated levels and would be influenced by global conditions as well as the RBI’s (Reserve Bank of India’s) actions. The movement of US treasuries and global commodity prices, such as energy prices, would have a bearing on yields,” Agrawal said.

The high bond issuance in 2020, by contrast, could have been fuelled by RBI’s actions.

“Corporate bond issuance was high in 2020, in spite of the slowdown, due to the long-term repo operations (LTRO) and targeted LTRO of the RBI. These enabled corporates to avail of easy money,” said Joydeep Sen, consultant at Philip Capital.

“In the slowdown phase (2021), corporates did a good job of reducing debt. Going forward, corporate bond issuances will pick up gradually, but the pick-up will be slow as there are spare capacities,” Sen said.

Despite the slowdown, the traditional corporate bond space and green bond issuances picked up. This came as global investors queued up to subscribe to these bonds due to their environmental, social and corporate governance (ESG) mandate.

Data from Bloomberg shows that in 2021, Indian companies issued $5 billion worth of green bonds, compared with just $875 million in 2020 and $3.23 billion in 2019.

In 2022, Agrawal expects bond issues across the rating scale and category to increase gradually.

“The year ahead can be expected to start cautiously and may see further acceleration in bond issues in the latter part of the year,” Agrawal said.

Firms, however, would not be in a rush to issue bonds, said experts.

Rates are rising as the RBI started normalising its extraordinary monetary policy. The central bank has stopped infusing fresh liquidity. It is draining out the liquidity overhang in the system through variable-rate reverse repo auctions (VRRR), the main tool now for its liquidity operations.

By December 31, the central bank removed Rs 7.5 trillion worth of its excess liquidity, from about Rs 13 trillion of overall liquidity in the banking system.

The money market rates have started climbing as a result. The overnight call money rate touched a repo rate of 4 per cent in December. The long-term rates, too, will get impacted soon, said experts.

The 10-year government bond yields, in fact, firmed up by more than 50-basis points by the end of December 2021, from the start of the year.

The 10-year bond yields closed at 6.454 per cent, a relatively sharper rise from the start of the year at 5.865 per cent.

The rising rates were reflected in the AAA-rated corporate and PSU issuances as well.