State-Run Firms Look To Raise ₹17,500 Crore Through Bonds

Several government-owned financial institutions are set to tap the bond market this week, aiming to raise around ₹17,500 crore. The move comes at a time when borrowing costs remain elevated and are unlikely to ease before the financial year ends.

However, the market participants say the timing is not ideal. Bond yields have risen in recent weeks, pushing up funding costs for companies. When yields rise, bond prices fall, making fundraising more expensive and eating into margins.

Which Firms Are Issuing Bonds?

Among the issuers lined up are the National Bank for Financing Infrastructure and Development (NaBFID), the Housing and Urban Development Corporation (HUDCO), the Small Industries Development Bank of India (SIDBI), and Power Finance Corporation (PFC), according to merchant bankers.

NaBFID plans to raise funds through 10-year bonds. HUDCO will offer perpetual bonds with a call option after 10 years. SIDBI and PFC are expected to issue bonds with maturities of up to 5 years.

It is interesting to note that some of these firms had earlier stepped back from the market. In December, SIDBI and PFC withdrew shorter-term bond offerings after investors demanded higher returns. PFC’s fresh issue will draw attention, especially after the proposed merger with REC.

Insiders believe that these companies have now accepted high yields and are ready to take the plunge. Venkatakrishnan Srinavasan, Founder and Managing Partner at Rockfort Fincap, said, “The pickup in issuance suggests companies have stopped waiting for borrowing costs to decline and have accepted that yields are unlikely to soften materially in the near term. They are choosing to access the market despite the high rates.”

Will Investors Accept These Issues?

Experts believe demand for bonds exists, but pricing will be key. If companies are unwilling to offer higher yields, subscriptions may be slow. A similar issue arose with PFC’s December bond sale, which was pulled due to disagreements over rates.

Yields on top-rated corporate bonds are currently higher than they were at the end of December. However, they have cooled slightly from the spike seen after the Union Budget earlier this month.

What Is Driving The Rate Outlook?

Many market observers believe that the Reserve Bank of India (RBI) may keep the policy rates unchanged for now. At the same time, heavy government borrowing, sticky inflation concerns, and tight liquidity have led to the view that rates could remain high for longer.

One market participant said companies appear to have accepted that waiting for lower rates may not help. Instead, they are choosing to borrow now, even if costs are steep.

However, the bond-issuing companies did not respond to queries seeking comment.

With a large supply of bonds hitting the market in a short span, investors will watch closely how these issues are priced and whether demand holds up.

Sources:

Reuters

The Economic Times