Top-rated Indian companies issue bonds at near-govt borrowing rates

Highly rated Indian companies are raising funds from the bond markets at interest rates only slightly higher than the government’s as investors rush to find quality bonds given the scarce supply.

The spread between 5-year corporate and AAA-rated government bonds has narrowed 17 basis points to 25 basis points since January, while the spread between the two 3-year securities has halved over the same period.

Typically, companies have to pay higher interest rates to offset the greater perceived risk, but top-tier companies are currently paying nearly 7.50% for three-year funds and 7.55% for five-year bonds.

“We’re seeing this because of concerns that an offer may or may not be in place,” said a trader at a major state-owned bank.

In the second half of last year, banks, pension funds and insurance companies waited for a corporate bond offering, which didn’t materialize, added the dealer, who declined to be named.

Even as the economy recovered, corporate bond issuance fell by more than a fifth between April and August this year compared to the same period before the pandemic in 2019.

This has resulted in higher rated companies being able to borrow near government bond borrowing rates, the safest asset in the Indian market.

For example, infrastructure finance companies

On Wednesday, the annual coupon for bonds with a maturity of three years and five months was set at 7.32%.

The 3-year government bond yield was 7.17% on a half-year basis during this period, which is roughly the same level on an annualized basis.

Much of the benefit of lower interest rates is limited to “AAA” rated companies.

“Corporate bonds rated ‘AA’ or ‘A’ never enjoyed excess liquidity during COVID as people didn’t want to take any risk,” said Ajay Manglunia, Managing Director of


“It’s only when government bond yields normalize against ‘AAA’ bonds that people will get more appetite for lower-rated segments.”


Spreads could widen from now on, analysts say.

India’s liquidity surplus eased in September and slipped into deficit for the first time in more than three years this week, sending a signal that the era of easy money may be over.

That, in turn, could prompt more companies to frontload loans.

“In an environment of rising interest rates, everyone wants to freeze their costs rather than keep them uncertain,” Manglunia said.

They like

ICICI and entered the market last month and are expected to require more funds to cushion their capital position.

“When banks roam the markets looking for liquidity, they pay a price and that price is passed on to borrowers,” said Anand Nevatia, fund manager at Trust Mutual Fund.

In addition, companies in sectors such as energy, industrials and consumer goods are likely to seek funds for equity investments with increasing private investment, investors said. Top-rated Indian companies issue bonds at near-govt borrowing rates

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