The corporate bond market is slowly starting to accept NBFCs back

India’s top-rated private and government-owned companies could be enjoying historic low rates in the markets for their short-term money, but the situation has not improved much for lower rated firms, particularly from the financial sector, but sporadic issuances of bonds have started taking place.

Admittedly, the liquidity scare faced by the non-bank financial companies (NBFC) have eased somewhat, but even there, well rated companies are the beneficiaries who have started issuing debt papers in larger numbers.  

Financial companies are also lining up equity issuances, and some dollar bond issuances are planned as well. In domestic markets, gold loan companies are getting active in raising bond.  

“Bond market has slowly started accepting NBFCs back. The para banking sector has also started getting healthy loan support from banks. The NBFC crisis could be nearing an end,” said a senior banker, requesting anonymity.  

The foreign branches of Indian banks have lined up heavy issuances of certificates of deposits (CD) in offshore markets. State Bank of India (SBI) and Bank of India (BoI), through their various foreign branches, have lined up CD issuances taking advantage of the low rates overseas. However, banks cannot bring those money onshore, but they will have to use it for their own local needs.  

State governments, which had to pay as much as 150 basis points higher than the government securities in the first auction of the financial year, are enjoying low yields now as they borrow at ultra cheap rates.

On Tuesday, auction of five state development (SDL) reflected such low cut-offs that states opted to borrow more. For example, Maharashtra raised Rs 1,500 crore against its planned Rs 1,000 crore in three-year bonds at 4.76 per cent. Rajasthan raised Rs 750 crore, against its planned Rs 500 crore through a 30 year bond at 6.70 per cent. Similarly, Tamil Nadu raised Rs 250 crore additional in each of its 9 year and 30 year securities as it got the money at  6.60 and 6.70 per cent, respectively.

Soumyajit Niyogi, associate director at India Ratings and Research, termed the cut-offs at historic lows, which is prompting the states to raise money. More states could line up borrowing owing to the low rates, caused by abundant liquidity in banks, bond dealers said.    

The NBFCs have also benefitted from various liquidity and guarantee measures taken by the Reserve Bank of India (RBI) and the government. But the buyers are still tilting towards AA and above papers, even as some A rated companies, both from financial and non-financial have stepped up issuances. The risk aversion is still visible in the markets, but there is a perceived assurance that the worst could be over for the NBFC sector, unless the global economy and as an extension, the Indian economy head towards choppy waters due to worsening of Covid-19 crisis.  

“The abundant liquidity and risk aversion in the banking system is now driving down yields on short term commercial paper of top-rated corporates to historic lows, as banks explore yield pickup alternatives to parking money with RBI through the reverse repo window,” said Nachiket Naik, head of corporate lending at Arka Fincap.

State owned NTPC on last Friday raised three months money at 3.34 per cent, a record low. ICICI Securities Ltd., on the same day raised similar maturity papers at 4.05 per cent. ICICI Securities Primary Dealership had on September 2019 raised one-month commercial papers at 5.75 per cent. Chennai Petroleum Corporation Ltd (CPCL) on 18 June had raised 2.5 months money at 3.39 per cent. The same CPCL had raised one-month money at 5.40 per cent in September 2019.  

In the secondary market, HDFC commercial papers are trading at 3.5-4.5 per cent depending upon the maturity. Hero Fin Corp papers maturing on 30 Oct was at 5.10 per cent. L&T’s papers maturing in December is trading at 3.75 per cent, but L&T Infra is trading at 5.30 per cent. NTPC and IOC papers, in the same market, is trading at 3.15 and 3.20 per cent respectively.

The corporate bond market, though, has started buzzing with activities. There were a number of good name issuances last week. HDFC, AAA rated, raised 10 year bond worth Rs 4,000 crore at 7.25 per cent. JM Financial Credit Solutions (AA) raised three-year bonds worth Rs 100 cr at 9.1 per cent. Muthoot Home Finance, having the same rating, raised three year money at 8.5 per cent, Chola (AA+) raised two year money at 7.2 per cent, Fedbank Financial (AA-) raised three-year money at 9 per cent, Tata Housing (AA) raised 1.5 year money at 8.75 per cent, Aavas Financiers (A+) raised 1.5 years money at 6.6 per cent, Esskay Fincorp (A) raised money 3 year money at 11 per cent.

This shows that investors are no longer going by rating alone, as companies in the same rating bracket are paying differential rates on their bonds. This also shows that investors, mostly banks, are more than willing to buy commercial papers for less coupons, instead of taking duration risk on corporate bonds.

However, "the current moratorium on loan portfolios and perceived asset quality challenges of BFSI players, has resulted in higher yields for non-industrial house backed NBFCs & HFCs,” Naik said.

Issuer Name	Coupon %	Issue Date	Maturity	Amount Issued ( Rs cr)
Housing Development Finance Corp Ltd	7.25	43999	47651	4000
Sikka Ports & Terminals Ltd	7.2	43998	45093	2000
IRB Infrastructure Developers Ltd	10	43998	45103	750
Nuvoco Vistas Corp Ltd	8.5	44000	44386	650
Muthoot Finance Ltd	9.5	44000	45826	500
Grasim Industries Ltd	5.9	43999	45093	500
HDB Financial Services Ltd	6.6835	44001	45225	450
Mahindra & Mahindra Financial Services Ltd	7.25	43998	45093	435
Neepa Real Estates Pvt Ltd	15	43997	45657	400
Mahindra & Mahindra Financial Services Ltd	6.95	43998	44728	395