By Dharamraj Dhutia
MUMBAI (Reuters) – Indian investor appetite is set to be tested in the run-up to the end of the financial year as companies line up $3 billion of bond issuances over two days, adding to an already heavy pipeline of debt.
State-run firms, including REC, NTPC and Canara Bank, are set to raise 140 billion rupees ($1.61 billion) on Monday and Tuesday, while non-banking financial companies (NBFC) may issue much as 164 billion rupees, above the threshold of 100 billion rupees per week.
India’s financial year runs from April to March.
“The supply overhang remains significant, with a heavy pipeline of state development loans crowding the market, said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.
“Credit spreads may face pressure as institutional investors push back on pricing, demanding a higher premium to compensate for the liquidity crunch and supply glut,” he added.
Indian states will raise over 401 billion rupees through a debt sale on Tuesday, followed by 540 billion rupees of issuances next week, as per schedule.
The supply is unlikely to be fully absorbed and yields on these bonds are expected to rise further, traders have said, especially as banking system liquidity remains in a deficit, which could widen amid tax outflows this week.
The deficit was around 2 trillion rupees, as of March 16, with the shortfall persisting for the last three months.
Corporate bond issuances had moderated due to a liquidity crunch but the central bank’s liquidity measures have helped NBFCs – which have been under pressure for the last few months – to raise capital from the debt market, said Suresh Darak, founder of Bondbazaar, an online bond trading platform.
He anticipates limited impact on high-rated corporate bonds.
“Given that most provident and pension funds have likely exhausted their allocations for the fiscal year, the absorption capacity for this supply could be constrained,” Rockfort Fincap’s Srinivasan said.
He expects that NBFCs with aggressive loan book growth may be forced to price their bonds at a modest concession to ensure full subscription, and of the total supply, around 200 billion rupees of debt could find takers.
Companies Quantum in billion rupees
including greenshoe option
REC 60
Canara Bank 40
NTPC 40
Aditya Birla Finance 62.50
LIC Housing Finance 40
Tata Capital 16
Can Fin Homes 16
Muthoot Finance 15
NIIF Infra Finance 7.50
Hinduja Leyland Finance 7
($1 = 86.8350 Indian rupees)
(Reporting by Dharamraj Dhutia; Editing by Sonia Cheema)
