Corporate bond issuance surges to 3-month high of Rs 1.05 lakh crore in December

corporate bond

Fundraising through corporate bonds surged to a three-month high in December on quarter-end demand for funds, increase in issuances by non-banking finance companies (NBFCs) and higher investment appetite from long-term investors, experts said.

According to the Prime database, corporates and banks raised Rs 1.05 lakh crore during the month, highest since September when the issuances was Rs 1.23 lakh crore.

“December witnessed a flurry of activity in the corporate bond market, as issuers rushed to lock in funding ahead of the anticipated spike in SDL supply in Q4. This surge was driven by long-term investors such as insurance companies and pension funds, who frontloaded their allocations to deploy fresh inflows from accruals and redemptions,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP, referring to state development loans.

On December 16, Moneycontrol reported that corporate bond issuances surged to an all-time high in 2024 due to low interest rates amid higher demand from long-term investors and infrastructure bond issuances by banks. Corporates raised Rs 10.66 lakh crore in 2024, which was record high issuances.

Of the total, around 60 percent issuances were from NBFCs, who have tapped the market heavily in order to diversify their borrowing mix after the Reserve Bank of India (RBI) last year increased the risk weight on bank loans to them.

On November 16, 2023, the central bank increased risk weights on unsecured consumer credit and bank credit to NBFCs to pre-empt build-up of any risk in these segments.

This increased the cost of bank loans to NBFCs, which then diversified their credit avenues and turned to the bond market for better rates.

“With the Reserve Bank increasing the risk weight on bank loans to NBFCs, these entities have been relying on alternative market instruments to diversify funding,” RBI said in its November bulletin. NBFCs also started tapping the offshore market to raise funds.

The fundraising was also higher in December because most issuers has rushed to lock in funds ahead of higher issuances by the states in the last quarter of the current fiscal year.

States and union territories are expected to borrow Rs 4.75 lakh crore through state development loans in the January-March quarter of FY25. This was sharply higher compared to previous three quarters.

Usually, higher borrowing in the fourth quarter by states lead to higher borrowing cost and widens the spread between G-sec and SDL. This is followed by rise in borrowing cost for corporate bonds.

Experts said that to avoid funds at higher cost, most corporates have tapped market in December. However, borrowing cost may remain under control because of heavy demand from pension funds and EPFO.