Mumbai: Indian companies, led by index bellwethers Reliance Industries, HDFC Ltd and Larsen & Toubro, raised a record Rs 7.67 lakh crore in local bond sales last year, benefiting from the lowest cost of borrowing at home and helping Mint Road achieve its stated objective of steering debt-seeking corporates away from banks.
Sovereign backed Food Corporation of India, National Highway Authority of India and two state-run telecom services providers were also among the large local entities that collectively raised Rs 7,66,781 crore last year, about 12% more than what they did in 2019, data compiled by JM Financial showed.
“Record low interest rates prompted many large companies to prefer the local market to that overseas,” said Ajay Manglunia, managing director- fixed income at JM Financial. “Surplus liquidity in the system paved the way for record high local bond sales in a single calendar year as subscribers were looking for credible borrowers.”
Reliance, India’s biggest company by all conventional metrics, more than trebled its bond sales to Rs 24,955 crore in 2020. India’s mortgage-lending pioneer, HDFC Ltd, raised Rs 53,860 crore, 4% more than what it had sold a year earlier.
Last year, the benchmark bond yield dropped about 70 basis points following cuts in the central bank’s policy rate that reached record lows. The bond sales coincide with a concerted central bank move to deepen India’s corporate bond market as it seeks to de-risk the bank-dominated lending system against inevitable business cycles.
Last year’s bond sales were pegged at 7.5% of the total bank credit of Rs 105 lakh crore.
Since March last week, the Reserve Bank of India infused an estimated Rs 2.43 lakh crore through an array of liquidity windows including Targeted Long Term Repos (TLTROs) and Long Term Repos (LTROs). During the last calendar year, the central bank slashed the repo or the rate at which banks borrow short term money from RBI, by about 140 basis points.
Larsen & Toubro, too, more than doubled its calendar-year bond sales to Rs 11,350 crore. State Bank of India (SBI) sold Rs 27,431 crore worth of bonds, compared with Rs 13,170 crore a year ago.
“The trend could change this year if the overseas market turns relatively more lucrative as the requirement for new money goes up to support growth,” Manglunia said.
Meanwhile, overseas corporate bond sales nearly halved through 2020. About two dozen Indian companies collectively raised $14.01 billion, down from $26.5 billion in 2019, ET reported on December 24.
“Fund houses of late experienced increased inflows, which they needed to deploy with a safety net,” said A Balasubramanian, CEO at Aditya Birla Mutual Fund. “Also, the authorities introduced enough liquidity windows to navigate the economic crisis. While small companies got access to cash, the large ones seized the opportunity to increase cash, available at a cheaper rate.”
The spread, or differential, between triple-A rated paper and the benchmark government bond with 10-year maturity dropped to 73 basis points from 107 basis points at the beginning of the year, Bloomberg data compiled by ETIG showed. The spread was at 23 basis points for three-year maturity compared with 71 basis points earlier.
A basis point is 0.01 percentage point.
“Higher rated non-bank entities benefited the most out of the record high local bond sales,” said Madan Sabnavis, chief economist at CARE Ratings. “While the central bank kept lowering rates leading to record lower yields, regulatory liquidity windows also helped with a compulsory subscription of bonds.”