Rajan Stimulus Working as Rare Issuers Revive Rupee Bond Market

  • Issuance in May has second-best start for month in 11 years
  • Indian central bank in April took measures to boost liquidity

Raghuram Rajan, governor of the Reserve of India.

Photographer: Dhiraj Singh/Bloomberg

India’s rare issuers are returning to the bond market as the central bank’s plan to boost cash in the financial system drives down borrowing costs.

Tata Realty & Infrastructure Ltd., part of the nation’s biggest conglomerate, made its rupee bond debut last month to raise 6 billion rupees ($90 million), while Great Eastern Shipping Co. in May tapped the market after a gap of five years. Billionaire Mukesh Ambani’s Reliance Jio Infocomm Ltd. secured the lowest-ever coupon for a three-year bond sale.

Reserve Bank of India Governor Raghuram Rajan announced a series of liquidity measures while reducing the benchmark repurchase rate last month for the fifth time since the start of 2015. The authority’s open-market purchases of bonds improved cash supply, helping ease a funding squeeze and driving the yield on top-rated corporate debt to a six-year low. Earnings in the world’s fastest-growing major economy seem to be recovering after the worst run since the global financial crisis.

“More than the policy rates, it is the way the RBI is approaching the liquidity issue that is helping the market,” said Rajeev Radhakrishnan, Mumbai-based head of fixed income at SBI Funds Management Pvt., which oversees 1.07 trillion rupees of assets. “We see issuers are coming back because corporate-bond yields are much lower and people are able to command better pricing. Demand for funds is also a function of how the economy improves.”

Indian companies have sold 72.3 billion rupees of local-currency notes so far in May, compared with just 17.4 billion rupees in the same period last year, as costs drop. Issuance for 2016 stands at 1.22 trillion rupees versus 4.3 trillion rupees for all of 2015. Firms have raised $1.89 billion via foreign-currency bonds this year, compared with $8.84 billion last year.

The average yield on AAA-rated 5-year bonds declined to 8.12 percent last month, the lowest since May 2010, according to data compiled by Bloomberg. It was at 8.21 percent on Friday. The rate on 3-year notes plunged to 7.98 percent on April 22, the lowest since August 2010. It was at 8.09 percent on Friday, compared with this year’s high of 8.55 percent in March.

Crompton Greaves Consumer Electricals Ltd. has mandated banks for its maiden issue, while Apollo Tyres Ltd. plans to raise 3.25 billion rupees by selling 10-year debt, as the company returns to the market for the first time since October 2010.

‘Most Appropriate’

“The chosen non-convertible debenture route seems to be the most appropriate one for our requirement,” said Gaurav Kumar, chief financial officer at Apollo Tyres said in an e-mail response to questions on May 4.

The RBI resumed open-market operations in December, after a gap of almost two years, to tackle a persistent funding squeeze in the system. The 1.01 trillion rupees it has since infused by way of OMO purchases is also aiding monetary transmission of its five interest-rate cuts since early 2015 more widely into the world’s fastest-growing economy. It plans to buy up to 100 billion rupees of bonds in another round of repurchases on Tuesday.

India’s one-year interest rate swaps dropped to a one-week low on optimism the monetary authority will add more funds. The cost to lock in payments on borrowings fell one basis point to 6.66 percent on Monday, a level last seen on May 2, data compiled by Bloomberg show.

Continuing Trend

Billionaire Adi Godrej’s Godrej Agrovet Ltd. last week sold 750 million rupees of 15-month notes at 8.08 percent, 55 basis points lower than a similar paper sold in 2015. State-owned Power Grid Corp. of India in April issued 15-year bonds at 8.13 percent, down from 8.32 percent in December.

Company profits in India dropped in four of the past five quarters in the worst run since the global financial crisis. So far in this reporting season, seven out of 11 Sensex firms that have reported earnings exceeded or matched estimates for the March quarter.

Domestic demand could get a boost should monsoon rains in Asia’s third-largest economy prove to be above-average as forecast by the weather department. That would also encourage the central bank to cut benchmark rates from a five-year low.

“Selling bonds has become cheaper,” said Ashish Jalan, assistant vice president for fixed income at SPA Securities Ltd. “We see this trend of debut and atypical issuers tapping the market for funds continuing.”

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