Bond Market Borrowings Become Cheaper In May
The central government, state governments and companies saw their funding costs drop in May.
Raising funds through the bond market turned out to be slightly cheaper for central and state governments, as well companies, owing to better liquidity conditions, dropping oil prices and open market operations by the Reserve Bank of India.
The central government saw its cost of borrowings, or the weighted average yield of auctions, drop to a 15-month low of 7.28 percent in May, about 14 basis points lower than 7.42 percent in April, according to a report by CARE Ratings on Thursday. The weighted average yield of auctions for the central government has seen a steady decline since March, the report noted. The government has raised Rs 1.53 lakh crore in April and May, about Rs 65,091 crore higher than the year-ago period.
Similarly, state government borrowings through auction of state development loans also got cheaper in May, dropping by 18 basis points to 7.96 percent. This is a 13-month low even as states borrowed only Rs 22,100 crore in May compared with Rs 29,572 crore in April. This happened because Himachal Pradesh and Tamil Nadu accepted lower bids, compared with a month ago.
Companies saw their weighted average cost of issuances drop by 13 basis points month-on-month to 8.49 percent in May, the CARE Ratings report said. Corporate bond issuances also increased during the month, with companies raising Rs 45,539 crore in May, as compared with Rs 24,497 crore in April and Rs 26,842 crore in May 2018. Most of this fundraise was by way of private placements.
The cost of funds had jumped since September 2018 as companies were bearing the brunt of a spate of defaults by the Infrastructure Leasing & Financial Services group. The liquidity too has been tight for the banking system in the last few months.
The banking sector’s liquidity, however, improved in May. The liquidity came into a surplus of Rs 2,038 crore at the end of the month compared with a deficit of over Rs 65,000 crore at the beginning, CARE Ratings estimated.
Banking and term lending accounted for about 35 percent of the total corporate bond issuances in May this year, while financial services accounted for 17 percent. Power generation, roads and highways, housing finance, real estate and telecom were other sectors which contributed to the bond issuances in the month.
The cost of borrowing through commercial paper inched up marginally to 7.48 percent, up 1 basis point month-on-month, the rating agency said in its report. Here again, financial services, banking and housing finance companies dominated the issuances.