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(Bloomberg) — Concerns about Indian inflation have prompted issuers to sell a record amount of rupee floating-rate bonds this year, a trend that may accelerate after price increases in the economy surprised investors this month.
Issuance of the notes has jumped 86% to 237.6 billion rupees ($3.2 billion) so far in 2021, a record for the period, even as offerings in the broader local corporate bond market as a whole have declined by about 17%. Sales of floaters in June are at their highest for any month since AprilFloaters can help investors when inflation is picking up because the interest that the securities pay increases when benchmark rates riseA higher-than-expected increase in consumer prices in May triggered a recent selloff in shorter-maturity rupee bonds on concern that the Reserve Bank of India may be prompted to withdraw market supports earlier
In a sign of increased investor interest in floaters, Tata Asset Management Ltd. opened a new rupee fund this week that will invest predominantly in the instrumentsThirty one issuers have sold local-currency floaters so far this year, already at the same level for all of 2020. Still the market for such issuance by volume is relatively small. Floaters accounted for 6.9% of total rupee corporate bond sales year-to-date, compared with 3.1% for the same period in 2020 and 0.6% in 2019Read also: RBI’s Pivot – Here’s When, What It Will Look Like
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Primary Issuance — Fewer deals
Rupee bond sales by Indian companies have slowed this week after yields on three-year notes of top-rated issuers climbed to their highest since AprilFirms have sold 51.7 billion rupees of debt securities as of Wednesday and plan to offer as much as 22.3 billion rupees in the remainder of the week. If those deals are concluded, the total would be less than half of the about 150 billion rupees raised last week
Secondary Market — Rising Costs
Rupee borrowing costs have climbed higher this week on concerns that rising oil prices may fan inflation risks. The commodity, India’s biggest import item, climbed above $75 a barrel for the first time in more than two years recently, based on Brent crude futuresThe average yield on top-rated three-year corporate notes jumped 14 basis points to 5.3% as of Wednesday, on track for a second weekly increase
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In the dollar market, spreads on Shriram Transport Finance’s bonds may still tighten versus Muthoot Finance debt, Bloomberg Intelligence Analysts Rena Kwok and Sheenu Gupta wrote in a note, citing a recent capital infusion of 20 billion rupees by the parent of Shriram Transport Finance
Credit Rating — Mixed performance
Reliance Industries’ foreign-currency debt rating was upgraded to BBB from BBB- on Wednesday by Fitch Ratings, a level higher than India’s sovereign ranking. Fitch cited strong external debt-servicing capabilitiesThe rating outlook for ICICI Bank, one of India’s largest private lenders, was revised to stable from negative by S&P Global on June 18. The bank will benefit from the sale of an insurance subsidiary stake and the gradual normalization of earnings, S&P saidCrisil downgraded state-owned Bharat Heavy Electricals to AA- from AA due to significantly weaker-than-expected operating performance in fiscal year 2021, according to a statement from the rating company on June 18HPCL-Mittal Energy’s credit metrics could weaken should there be a delay in EBITDA addition from its new petrochemical plant, or a weaker gross refining margin, Fitch Ratings said on Wednesday
Distressed Debt — Resume Operations
An Indian bankruptcy court ruled Jet Airways India, once India’s biggest private carrier, can resume operations under a new owner more than two years after it collapsed, Ashish Chhawchharia, the court-appointed professional running the carrier’s insolvency said TuesdayLenders of Reliance Home Finance selected Authum Investment & Infrastructure as the successful bidder for the company, the financier said on MondayRead also: Banks Recover About $1 Billion From Indian Ex-Billionaire Mallya
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