Sales of Riskier Company Bonds Vanish in Indian Credit Scare
Sales of riskier rupee corporate bonds have all but dried up in recent months.
(Bloomberg) -- Sales of riskier rupee corporate bonds have all but dried up in recent months, in another negative for India’s slowing economy as companies struggle to raise cash.
Issuance of notes graded A+ and lower plunged 84% last quarter from a year earlier to 22.6 billion rupees ($329 million), the least in five years, according to data compiled by Bloomberg. Borrowing costs have also jumped for issuers with lower debt scores, as a crisis in India’s shadow banking sector saps investor demand for riskier securities.
Debt issuance is unlikely to get easier for weaker borrowers in coming quarters as a cash crunch sparked by an infrastructure financier’s unexpected default last year shows little sign of subsiding, according to JM Financial Products Ltd. A funding shortage in the corporate sector and rising investor concern about defaults add to woes for Asia’s third-biggest economy, whose growth slowed to a five-year low in the first three months of 2019.
“Lower-rated corporate bond sales have fallen because there is absolutely no risk-taking ability among investors at the moment,” said Ajay Manglunia, managing director and head of institutional fixed income at JM Financial Products. “Lack of financing may result in companies slowing down their expansion plans.”
Government is proposing steps to allay the credit scare and to improve the flow of credit to small and medium-sized companies. On Friday the Finance Minister Nirmala Sitharaman said during her budget speech that measures will be taken to enhance shadow banks access to funds. These steps include a limited backstop for purchases of non-bank lenders’ assets and stricter regulation of these companies.
The cost for weaker issuers to sell debt relative to strong borrowers has jumped in recent months. The extra yield on A rated 10-year maturities over AAA debt was 185 basis points, an increase of 22 basis points from this year’s low touched in March.
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, Ken McCallum
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