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Corporate Bond Market Grows 22% as Loans Slow

Published: 12th December 2014 06:03 AM  |   Last Updated: 12th December 2014 06:03 AM   |  A+A-

MUMBAI: Borrowing by companies from private placement of bonds showed a healthy 22 per cent growth in the first-half of the fiscal compared with the same period previous year as companies sought to benefit from lower interest rates in bonds and money markets compared with loans.

Growth in bank loans has been muted this fiscal so far on modest economic growth and as companies devote more borrowed money on working capital since they aren't making investments in new projects. With the yield on 10-year government bond dropping 118 basis points since Nov. 1, 2013, the coupon on corporate bonds too have dropped correspondingly, making them more attractive compared with bank loans.

The debt demand for bonds is coming from local as well as overseas investors. Foreign investors have almost exhausted their allocation of government bonds, corporate bonds and commercial paper taking advantage of higher interest rates in India compared with advanced countries. Foreign investment in local debt is close to $25 billion.

In government bonds, foreign investors have exhausted 99.07 per cent of their limit, while in commercial paper the limit exhausted is 99.75 per cent, and overall 74 per cent for corporate debt, according to data from National Securities Depository Ltd.

In the six months to Sept 30, 181 companies and institutions raised about Rs 159,477 crore compared with Rs 130,265 crore in the same period a year earlier. About half this amount, or about Rs 78,500 crore was raised by banks and other financial institutions, according to Prime Database.

Private sector companies raised 36 per cent more amount at Rs 70, 031 crore. Housing Development Finance Corp led with Rs 16,495 crore, while Rural Electrification Corp followed by raising Rs 13,465 crore and Power Finance Corp Rs 12,182 crore, among others.



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