Transmission company Power Grid Corporation of India is expected to raise Rs 2,500 crore by issuing corporate bonds before the end of this month. The company would issue bonds in tenors ranging between four and 15 years, with a coupon rate of 9.50 per cent, said bond dealers.
Yields on 10-year ‘AAA’ rated corporate bonds issued by public sector units currently stand at around 9.45 per cent.
Last week, the Reserve Bank of India (RBI) had raised the repo rate by 50 basis points (bps), which was higher than market expectations of a 25-bps rise. After the announcement, yields on the 10-year benchmark government security rose by around 15 bps. The yields had softened to 8.29 per cent before RBI’s rate rise policy from 8.46 per cent in May.
While Power Finance Corporation issued bonds at 9.36 per cent before the policy announcement, funds turned costlier for Rural Electrification Corporation, which had to offer a coupon rate of 9.48 per cent after the policy announcement. IL&FS also issued 10-year bonds at 9.68 per cent after the policy announcement last week.
Spreads, the difference between yields of corporate bonds and government securities of the same maturity, compressed by five-10 bps after RBI’s rate rise. “Spreads reduced on lower investor appetite, as people expect rates to increase further,” said a bond dealer with a domestic brokerage.
To fight inflation, RBI has increased the repo rate by 125 bps in the current financial year. Currently, the repo rate is eight per cent. RBI is slated to announce its mid-quarter review on September 16. “If rate rises continue, yields may continue to stay high, but the feeling is that we are closer to the peak,” said the dealer.