Private placements of corporate bonds drop

They dropped 24% to Rs 2.76 lakh crore

For the first time in six years, corporate bond issuances through the private placement route saw a contraction due to economic slowdown in the financial year ending March 31, 2014.

Latest data from capital market regulator Securities and Exchange Board of India (Sebi) show in FY14, corporate bond issuances through private placement dropped 24 per cent on a year-on-year basis to Rs 2.76 lakh crore. The amount raised in the financial year ending March 31, 2013, was Rs 3.61 lakh crore.

With economic growth expected to pick up soon, bond issuances this financial year might see some improvement, as a need for more funds is likely to arise. Besides, the Street is hoping for a stable government to come to power, which might help revive the economy.

  Arvind Konar, head of fixed income, Almondz Global Securities, said: “Due to slowdown in the economy, issuances were less in private placement of corporate bonds. Interest rates were also on the higher side. Banks also did not borrow much through bonds due to slowdown in their disbursements. But this financial year, sentiments are expected to improve if we have a stable government. In fact borrowings through this route will pick up more if interest rates start falling.”

In the monetary policy  review earlier this week, key policy rates were kept unchanged. The guidance given by RBI was that if inflation continues along the intended glide path, further policy tightening in the near term was not anticipated at this juncture.

In the last financial year, tax-free bond issuances were a hit among investors and that was yet another reason due to which the private placement route was not tapped much. “A majority of the corporate bond issuers are the public sector undertakings (PSUs) and they went for tax-free bonds. Through tax-free bonds they were able to raise close to Rs 48,000-49,000 crore. As a result these PSUs did not tap the private placement market much. The last issue of private placement was by Rural Electrification Corporation (REC) on March 28. They raised Rs 1,600 crore through three year bonds at 9.52 per cent,” said Ajay Manglunia, senior vice president (fixed income), Edelweiss Securities.

Yields on corporate bonds have risen recently in tandem with rise in government bond yields due to which cost of borrowing for corporates continues to be high in private placements. “In the last few days corporate bond yields rose by about 8-10 basis points because even government bond yields rose,” said Manglunia.

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