Corporate bond issuances touch all-time high of over Rs 10 lakh crore so far in 2024

Corporate bonds

Fundraising through corporate bonds has surged to a record high of Rs 10.11 lakh crore so far in 2024, driven by factors such as low interest rates, increased issuances by non-banking finance companies (NBFCs), and infrastructure bond issuances by banks.

According to the data compiled from Prime Database, over Rs 6 lakh crore, or 60 percent of the total corporate bond issuances so far this year, was raised by NBFCs, which tapped the route after the Reserve Bank of India (RBI) raised risk weights on bank loans to them.

“Diversified borrowings by AAA state-owned entities, reduction in the yield on corporate bonds tracking easing G-sec yield, and infrastructure bond issuances by banks helped increase the bond issuances in 2024,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

Further, institutional investors, including insurance companies, pension funds and mutual funds, actively sought long-duration assets amid the declining interest rate environment. This led to over 30 issuances of Rs 5,000-10,000 crore in single tranches, showcasing robust demand for high-quality corporate debt, experts said.

Rise in NBFCs issuances post risk weights

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 in search of 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.

Better rates for fundraising

The yields on corporate bonds have declined by around 43 basis points (bps) so far in 2024, tracking the easing yield on the government securities, prompting more issuers to tap the market and raise funds at better rates.

Usually, whenever the yield on government securities falls, the yield on the other debt instruments such as corporate bonds and state development loans gets adjusted accordingly because G-sec is considered the benchmark for all other rates in the bond market.

G-sec yields eased in 2024 despite no rate cut by the central bank in 2024. Experts said the major reduction in yield took place due to heavy demand from foreign investors, especially for securities present in JP Morgan’s global bond index. The 10-year benchmark bond yield fell around 44 basis points so far in 2024.

Further, factors such as stable macroeconomics and benign global interest rate scenario also helped yields cool off.

Srinivasan said as G-Sec yields dropped, AAA corporate bond yields followed suit, compressing spreads and making it an opportune time for corporates to raise debt at historically low rates.

According to the Bloomberg data, yield on AAA rated corporate bonds maturing in three years fell 28 bps, five years by 30 bps, and 10-year by 43 bps.

The falling yield environment benefited top-tier issuers the most, as investor appetite concentrated on AAA-rated papers.

Risk premiums remained high for lower-rated issuers, but even these segments saw some decline in yields due to improved liquidity, risk sentiment and online bond platform providers marketing lower rated bonds, experts said.

The outlook

Money market experts said any further reduction in interest rates on the expectation of a rate cut in the RBI’s monetary policy committee meeting in February would prompt more issuers to tap corporate as well as overseas bond markets to reduce their cost of funds.

“The government’s infrastructure push and corporate capex plans will continue to underpin demand for long-tenor funding,” Srinivasan added.