Rising interest rates to reduce bond issuance this fiscal year: Icra report


By PTI IST (Released)

Non-bank lenders remained the top bond issuers with a 47% share in H1, followed by corporates and banks at 33 and 20%, respectively, from 50, 40 and 10%, respectively, in H1 . of the last financial year, according to the report.

Corporate bond issuance is expected to remain muted, growing 4-5% this financial year to hit Rs 41.42 lakh crore on the rise in coupon rates, despite the drop which has more than doubled in the second quarter, according to a report.

Bond sales more than doubled to Rs 2.1 lakh crore in the second quarter from the first quarter, when they were at a multi-year quarterly low of Rs 1 lakh crore, as banks issued bonds worth a record Rs 53,900 crore, and NBFCs, traditionally the biggest players in the market, issuing securities worth Rs 1.1 lakh crore in the second quarter, according to an analysis by ICRA Ratings.

Non-bank lenders remained the top bond issuers with a 47% share in H1, followed by corporates and banks at 33 and 20%, respectively, from 50, 40 and 10%, respectively, in H1 . of the last financial year, according to the report.

Driven by bumper sales in the September quarter, overall bond issuance hit Rs 3.3 lakh crore in the first half, and the agency expects sales of Rs 3.7-4.2 lakh crore crore in the second half of this fiscal year, slightly higher than a year ago. period, increasing the volume of outstanding bonds to Rs 41-42 lakh crore by March 2023. However, this translates into moderate year-on-year growth of only 4-5%, net of redemptions, with issuance further increasing by Rs 7-7.5 lakh crore, up from Rs 6.8 lakh crore in FY22.

The agency attributes the weak volume growth to the rising interest rate regime, which will force issuers to offer higher coupon rates/higher yields, which could increase investor appetite.

The agency expects yields on the 10-year G-Sec (government securities) to harden to 7.7% in the short term and to remain between 7.3 and 7.7% in the long term, which will also cause corporate bond yields to rise.

Even though domestic bond issuance more than doubled in the second quarter, external commercial borrowing (ECB) remained subdued due to rising overseas funding costs.

In the first five months of FY23, ECB approvals sought from the Reserve Bank fell 24% to $8.3 billion. Given the larger increase in policy rates by central banks and the resulting rise in foreign borrowing costs, overall borrowing costs for domestic firms were higher than domestic financing costs and should remain so in the short term.

This is expected to keep approvals low in FY23 at $30-35 billion, compared to YSD 38.6 billion in FY22 and $35.1 billion in FY22. 21, according to the agency.

While the RBI’s policy tightening is likely to continue, the magnitude of the incremental hikes could be less than that seen since May 2022.

Icra foresees gradual increases in key rates until December 2022, with an increase of 25 to 35 basis points followed by a pause. In addition, with a large government borrowing program and a gradual 25-35 basis point rate hike, 10-year G-Sec rates are expected to tighten to 7.7% in the near term and remain between 7.3 % and 7.7% on the horizon. long term.

The agency projects net outflows from the foreign portfolio investors (REITs) segment of $8 billion to $13 billion in FY23, compared with an outflow of $16 billion in FY22. But that could fall if the US Fed signals lower than previously quoted rate hikes in the future.


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