Photographer: Prashanth Vishwanathan/Bloomberg

Top SUV Maker Drives Rupee Bond Sales as Costs at Six-Year Low

  • Mahindra & Mahindra ends absence to seek 10 billion rupees
  • ‘These are attractive levels’ to borrow, top underwriter says

Mahindra & Mahindra Ltd., India’s biggest manufacturer of sports-utility vehicles, is seen driving a revival in rupee bond sales after borrowing costs declined to a six-year low.

The automaker is returning after a gap of three years and may raise 10 billion rupees ($150 million), while soapmaker Nirma Ltd. plans to sell about 40 billion rupees of debt. The average yield for three-year AAA corporate borrowers slumped to 7.88 percent, the lowest since 2010. That looks set to revive local-currency issuance, which slumped to 861.8 billion rupees last quarter, the slowest in a year.

“These are attractive levels for corporates to come and borrow,” said Shashi Kant Rathi, head of investments and capital markets at Axis Bank Ltd., who estimates full-year sales will rise 15 percent to a record 5 trillion rupees. “The traction of new issuance will strengthen further and a lot of companies will look to refinance via bonds.”

Cheaper financing is good news for Asia’s third-biggest economy, reeling from twin blows last month after Reserve Bank of India Governor Raghuram Rajan announced his departure and Britain voted to leave the European Union. Bonds are rallying as investors sought haven assets and a pickup in monsoon rains promised to keep inflation in check and give the RBI room to cut benchmark interest rates.

Axis Bank, the leading arranger for local currency notes since 2008, said issuance in the second half will be about 1 trillion rupees higher than the 1.9 trillion rupees in the first half.

Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. last week sold 20 billion rupees of five-year bonds at 8.32 percent, 58 basis points lower than similar paper sold in January 2015. Housing Development Finance Corp., India’s largest mortgage lender, plans to issue three-year securities at 8.38 percent. That’s lower than the weighted average coupon of 8.7 percent on all its rupee notes.

Issuance will also likely rise as bonds offer companies savings of at least 1 percentage point over loans, said Axis Bank’s Rathi. The minimum lending rate at the largest lender, State Bank of India, is 9.3 percent.

Pandora’s box

Brexit has opened a “Pandora’s box” of sliding yields as global weakness may prompt major central banks to ease monetary policy, according to Kotak Mahindra Bank. It predicted in a July 12 note that the RBI will cut interest rates by 25 basis points by yearend on the "spillover of weaker global growth and commodity prices, comfortable CPI inflation and a more dovish developed markets policy stance."

Tata Power Company Ltd., part of the nation’s biggest conglomerate, this week said it plans to raise 35 billion rupees via notes maturing in less than three years, while Mumbai-based IL&FS Transportation Networks Ltd. plans to offer 18 billion rupees of bonds to fund its highway project.

“Issuers are trying to time the market because they believe that global conditions and the change in the reign at the RBI will result in faster rate cuts,” said Dwijendra Srivastava, the Mumbai-based chief investment officer for debt at Sundaram Asset Management Co. “As the economy picks up pace debt borrowings are bound to increase. Top-quality issuers may choose bonds over loans as those are cheaper.”

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