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Lenders Pull Bond Sales as India’s Tax Stimulus Push Yields Higher

The average yield on top-rated 10-year corporate bond jumped 15 basis points to 7.94%, the biggest single-day gain since January.

Lenders Pull Bond Sales as India’s Tax Stimulus Push Yields Higher
Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)  

(Bloomberg) -- Two Indian state-owned lenders withdrew rupee-denominated debt sales as fears of an additional government borrowing in the wake of the $20 billion tax-cut booster led to a spike in financing costs.

Power Finance Corp. pulled a sale of three-year notes of as much as 50 billion rupees ($705 million) Friday and Bank of Baroda delayed its plan to sell as much as 16.50 billion rupees perpetual debt on Monday. Coupon bids received by both issuers topped their expectations, people familiar with the matter said.

Lenders Pull Bond Sales as India’s Tax Stimulus Push Yields Higher

“Due to a surprise change in the government’s policy regarding corporate tax during the course of our issuance, there was a lot of uncertainty in the market,” Kamal Mahajan, head of treasury and global markets at Bank of Baroda said by email. “We expect a better rate when the market stabilizes.”

The average yield on top-rated 10-year corporate bond jumped 15 basis points Friday to 7.94%, the steepest gain since January, data compiled by Bloomberg show. The surge mirrored a spike in sovereign bonds after the unexpected stimulus raised the specter of missing deficit targets. On Monday, rates fell five basis points to 7.89%.

Indian Renewable Energy Development Agency Ltd., the lone company that priced its notes after the tax cuts were announced, had to pay a coupon rate of 8%. That’s higher than the weighted average coupon of 7.89% on all its rupee notes. It priced 10 billion rupees by 10-year bonds on Friday.

Focus now turns to the pricing of bonds from REC Ltd. on Wednesday. The state-run lender has sought bids for as much as 27 billion rupees of September 2023 and 10-year bonds. ONGC Petro Additions Ltd. also sought bids on the same day with plans to raise as much as 5 billion rupees.

Key Points:

  • Indian companies have sold 1.27 trillion rupees of local-currency bonds so far this quarter, down 27% from the same period a year ago: Bloomberg-compiled data
  • Sales of rupee bonds rated below AAA have more than halved this year to 725 billion rupees as a wave of debt defaults and a funding crunch in the shadow banking sector make investors reluctant to buy riskier notes
  • For more on deals and mandates, click here

To contact the reporter on this story: Divya Patil in Mumbai at dpatil7@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Anto Antony, Ravil Shirodkar

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