With bank loan rates high, cos tap bond market in June quarter

Unlike bank loans, bond market seems to be ushering corporate India’s future growth as companies have raised record sums in the April-June quarter with twin objectives: readying expansions and repaying high cost bank loans.

During the period, investment bankers-led by Axis Bank have arranged bond sales worth Rs 1.04 lakh-crore, the highest ever volume in the first quarter, normally seen tepid at the beginning of a financial year, show data compiled by ETIG citing the latest Bloomberg Debt Capital Market league table. It was at Rs 81,739 crore during the same quarter last year.

“Corporate bond market is now more efficient than bank loans,” said Ajay Munglunia, executive vice-president at Edelweiss Finance.

“Average borrowers now prefer the bond route as they save significant cost. In the first quarter of the fiscal year (2017-18), companies normally go slow. But, this time it was different as they have readied their future expansion plans.”

For now, the average gap between bank loan rates and bond yields is in the range of 100-200 basis points depending on certain factors.

For example, a top-rated corporate could borrow five-year money at 7.50-7.60 per cent while similar tenor bank loans would be at least 8.50 per cent, said dealers. “Overall the primary bond market has turned vibrant amid sluggish bank loan growth,” said Shailendra Jhingan, MD, ICICI Securities Primary Dealership.

“In April-June quarter many companies were seen raising cheap money from bond market to repay their high cost loans as yields came down with falling inflation. NBFCs along with a few public sector companies were active in doing it.” Private sector major Axis Bank has been consistently at the top of the league table. It has managed 60 such issuances worth Rs 29,798 crore, show the latest release. HDFC Bank ranked second in the table.

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ICICI Securities Primary Dealership has jumped three steps to hold the third position while its parent, ICICI Bank inched up to fourth-rank from fifth earlier.

With bank loan rates high, cos tap bond market in June quarter

“On investor front the appetite was strong enough as mutual fund, flush with fresh fund inflows at the first quarter of the fiscal year were investing,” Jhingan said.

During the three month-period the assets under management in income and balance funds, which significantly invest corporate bonds have expanded about 5-29 per cent to about Rs 7.78-1.10 lakh crore, show data from Association of Mutual Funds in India.

In the past decade, corporate bond market has grown about 15 per cent CAGR but last year (2016) it surged four-times higher with banks, stuck with sticky assets, hesitating to give loans. Bank credit hit 63-year low at just about 5 per cent.

Among new-generation private sector lenders Kotak Mahindra Bank and IDFC Bank improved their ranks by four-six notches to 13th and 14th. State Bank of India slipped to fifth rank.