AA and below-rated companies step up borrowings to Rs 18,039 cr in Sept as top firms stay on sidelines

Bonds

Fundraising by AA and below rated companies through corporate bonds jumped sharply in September in the absence of top AAA-rated issuers in the market.

The AA and below rated companies raised Rs 18,039.57 crore via bonds in September, which was almost a 144 percent increase compared to Rs 7,396.31 crore raised in the previous month, according to the data compiled from BSE and National Stock Exchange of India (NSE).

Money market experts said the rise in AA and below rated companies was because AAA issuers stayed on the sidelines for the scheduled Reserve Bank of India’s (RBI) monetary policy, in which the market was expecting a dovish stance amid rising US treasury yields.

“The rate sensitive AAA issuers wanted to understand the RBI's view on interest rates while demand sensitive credit issuers, which are AA and below, leveraged on the room created by limited AAA issuance,” said Nagesh Chauhan, Head DCM, TheFixedIncome.com (Tipsons Group).

Further, Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, said due to changes in income tax rules in market linked debentures (MLDs)/debt mutual fund products, investors like Alternative Investment Funds (AIFs), high net worth individuals, family offices, wealth management teams and online bond portal providers have diverted their attention to lower credit instruments, which offers higher yields to customers.

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The numbers

Godrej Properties, DLF Cyber City Developers, The Tata Power Co Ltd and Motilal Ostwal Finvest were some top issuers in the AA and below rated papers in September.

These companies together raised over Rs 4,000 crore in September. Of the total amount, Godrej Properties raised Rs 1,160 crore, DLF Cyber City Developers raised Rs 1,100 crore, The Tata Power Co Ltd raised Rs 1,000 crore, and Motilal Ostwal Finvest raised Rs 870 crore, as per NSE and BSE data.

As per data, among banks that tapped the bond market, Bank of India raised Rs 2,000 crore and Punjab National Bank raised Rs 3,000 crore. Both these banks have ‘AA’ ratings.

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Rates

The rates on AA and below rated companies saw some moderation in September. The rates on these papers which were trading in the range of 8.10-12.0 percent in August fell to 7.45-11.75 percent range in September.

“Opening of bond markets to lower credit rated entities helps these entities to grow faster irrespective of pricing difference,” Srinivasan said.

Further,  Chauhan said the depth and maturity of Indian Debt Market have significantly increased in lower rated papers (AA and Below) in recent past and most of these issuers have started reaping the benefits of matured market by able to garner funds lower than bank rates.

On the other hand, yields on government bonds have seen some uptick of 9-10 basis points in September due to rising inflation and some domestic factors.

The yield on the 10-year benchmark government bond was trading at 7.3209 percent on October 11.