With the yields on long tenure papers showing signs of moderation, financial institutions have queued up with their debt issuances.
IDBI Bank aims to raise Rs 750 crore via Tier-II bonds of 10-year maturity at a coupon rate of 9.38 per cent. YES Bank also aims to raise Rs 300-350 crore by sale of Tier-II bonds at a coupon rate of 10.30 per cent.
“There is good investor appetite for long-term credit as people believe that interest rates have peaked out and may ease further going forward,” said Rajat Monga, chief financial officer, YES Bank. He added that the bank’s bond issuance was getting huge response from insurance companies, mutual funds, provident funds, pension funds, corporate bodies and banks as well.
Interest rates on 10-year ‘AAA’ corporate bonds have eased by around 25 basis points over a month while the spreads over the corresponding government security have fallen by around 30 basis points in the same period. The yields on the 10-year benchmark government bond have fallen by 10 basis points from its peak in the beginning of this month. The 10-year interest rate swaps have also eased by around 20 basis points in the past month.
Long tenor issuances are slowly picking up with rates cooling down. Non-banking finance companies like IL&FS and SBI Global Factors are also expected to raise Rs 100 crore each via 10-year bonds. The coupon rate for IL&FS bond will be at 9.68 per cent while that for SBI Global Factors is at 9.22 per cent.
Last week’s 10-year bond issuances included Reliance Ports and Terminals that raised Rs 2,500 crore at a coupon rate of 10.40 per cent and Rural Electrification Corporation that raised Rs 1,500 crore at a coupon rate of 9.63 per cent.
Moderation in short-term rates gave rise to expectations that rates on the longer end of the curve would also ease going ahead. The rates on commercial papers and certificate of deposits have fallen by 75-100 basis points in the past month owing to comfortable liquidity situation. Also, short-term rates eased as demand from banks tapered off on account of healthy growth in their deposits and low credit offtake.
“Oil price correction, expectations that rate hikes are nearing peak and better system liquidity are some of the reasons why long tenor issuances are picking up,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. He added that there was more demand for long tenor debt papers from investors and traders.
According to Clearing Corporation of India, there were 16 issuances of 10 year and above maturity with an average coupon rate of 9.39 per cent in June, while the number of issuances in similar maturity were 10 in May and seven in April.
