Bond sales nosedive as Covid 2.0 cripples India Inc’s capex plans – The Economic Times

Clipped from: https://economictimes.indiatimes.com/markets/bonds/bond-sales-nosedive-as-covid-2-0-cripples-india-incs-capex-plans/articleshow/82836828.cms

SynopsisCompanies have cumulatively sold Rs 36,720 crore worth of bonds in FY22, JM Financial data showed. That compares with about Rs 1.65 lakh crore in the same period last year, when borrowers rushed to refinance at debt costs plunged in the aftermath of the unprecedented lockdown.

MUMBAI: This is a classic ‘this-time-that-year’ tale. Much of India is now sealed. So it was last summer, perhaps even more hermetically. But through that closed season, corporate bonds had opened to record subscriptions. Twelve months later, the deluge has dried to a dribble, mimicking the padlocked real economy beyond SoBo.

Companies have cumulatively sold Rs 36,720 crore worth of bonds in FY22, JM Financial data showed. That compares with about Rs 1.65 lakh crore in the same period last year, when borrowers rushed to refinance at debt costs plunged in the aftermath of the unprecedented lockdown.

“Companies have shelved capex plans amid the pandemic,” said Ajay Manglunia, managing director at debt capital market at JM Financial. “A second wave of infections has further created a human resource problem with many executives falling prey to it. All companies are now busy dealing with people exigencies, putting business matters on the backburner.”

A large domestic institution had to virtually shut its capital market operations as members of its investment banking team were hit by the virus.

It isn’t alone.

Moreover, the spread between government bonds and top-rated private corporates with 10-year maturity has further narrowed, making the risk-reward proposition less attractive for risk-averse investors.

The differential or spread between the benchmark bond and top-rated private issues has narrowed to 75 basis points, compared with 100 basis points in March, dealers said.

“The greater concern is that unlike earlier pre-Covid years, this year the issuance volumes may not pick up significantly in the rest of the quarter,” said Shameek Ray, head – DCM at ICICI Securities Primary Dealers. “The second wave has hit some industries hard, crippling their usual ability to run businesses, while some other industries are outperforming.”

For instance, the Information Technology and healthcare sectors are doing well.

During April and May, large issuances were conspicuous by their absence. For the rest of May, dealers expect bonds worth about a couple of thousands of crore of rupees to be sold.

“The supply side is limited, particularly in non-triple categories,” said Lakshmi Iyer, CIO – debt and Head – Products at Kotak Mahindra Asset Management Company. “Bond sales are truly on a slow lane. Companies that raised money last year are now sitting on cash in the absence of capex plans.”

Last year during April – June period, volumes were high as a host of liquidity easing measures prompted many non-banks and companies to raise bonds via dedicated windows like Targeted Long Term Repo Operation (TLTRO). But this fiscal year, the drop in volumes is significant and could well be the lowest in the past four-five years.

Power Finance Corporation, Rural Electrification Corporation, Tata Steel, Reliance Industries and Housing Development Finance Corp (HDFC) are largely missing from the primary market this fiscal.

Non-banks including Piramal Enterprises, Tata Housing, Tata Motors Finance and the Muthoot group were frequent issuers in the first few months of last year.

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