Borrowing costs on bonds have plunged after policy makers unveiled
record stimulus to help combat the financial fallout of the pandemic.
First-time bond
issuers are rushing into India’s
debt market as unprecedented stimulus steps reduce borrowing costs to the
cheapest since 2005.
Yoga guru Baba Ramdev’s Patanjali
Ayurved Ltd. and Wipro Enterprises Pvt., part of Indian software tycoon
Azim Premji’s empire, are among 91 maiden rupee-note sellers so far this year.
That’s a rebound from 2019, when investors’ risk aversion amid a credit crunch
led to only 61 firms making their bond-market debut in the same period.
The increase in
debut bond sales will help add depth to the debt market, providing more choices
for investors while also giving rise to the risk of buying notes of borrowers
that lack a track record. For the issuers, debt deals are an opportunity to
build cash buffers in a slumping economy.
It also typically
costs less to sell a bond than to get a loan, because banks are curbing lending
to battle the world’s worst debt ratio. The average yield on top-rated
three-year notes at 5.09% is 221 basis points cheaper than loans of similar
tenor at the country’s largest lender State Bank of India.
Borrowing costs on
bonds have plunged after policy makers unveiled record stimulus to help combat
the financial fallout of the pandemic. Steps included slashing interest rates
to the lowest level since at least 2000, funding banks’ purchase of 1.13
trillion rupees ($15 billion) of company notes and deferrals on loan repayments
for individuals and businesses.
Some investors
worry that the pandemic relief measures are masking the true picture of businesses’
credit health. But bond yield premiums suggest the market welcomed the moves.
The spread between
top-rated three-year corporate notes and similar tenor government debt fell to
22.4 basis points last month, the lowest level since October 2005. The gap
stood at 25.9 basis points on Thursday.
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