Indian corporate bond sales fell tothe lowest level for December since 2007 as company treasurersdelayed new offerings until the central bank confirms it��sfinished raising interest rates.
Power Finance Corp Ltd. (POWF) and Rural Electrification Corp.said they won��t offer bonds until after the Reserve Bank ofIndia, which meets on Dec. 16, signals that the record 13increases in the repurchase rate to 8.5 percent are over.Corporate bond issuance dropped to 50 billion rupees ($940million) this month, the lowest amount in any December since2007, according to data compiled by Bloomberg.
A drop in borrowing costs would make it cheaper forcompanies to raise funds for the $1 trillion of road and powerprojects needed to support the expansion of Asia��s third-largesteconomy. The extra yield investors seek to hold top-rated Indiancompany notes over government debt declined from a seven-weekhigh reached on Dec. 8, while the comparable spread in Chinawidened.
��We will approach the bond market in the last week ofDecember, or early January as we have sufficient liquidity now,and interest rates may ease 10 to 15 basis points by then,��Hari Das Khunteta, finance director at Rural Electrification (RECL),said in an interview from New Delhi on Dec. 9. ��Chances of arate increase are very dim.��
New Delhi-based Rural Electrification was India��s third-largest borrower in the past five years, after Power Finance andHousing Development Finance Corp. (HDFC), according to data compiled byBloomberg.
Spreads Narrow
The extra yield demanded to hold Indian corporate five-yearbonds rated AAA by Standard & Poor��s Indian unit Crisil Ltd.narrowed 3 basis points, or 0.03 percentage point, to 82 basispoints yesterday, from 85 on Dec. 8, according to data compiledby Bloomberg. The spread for Chinese securities widened to 189yesterday, from 185 at the start of the month, according to datafrom Chinabond, the nation��s biggest debt clearing house.
Power Finance, a New Delhi-based st! ate-owne d lender, willprobably start selling 40 billion rupees of tax-exempt 10- and15-year securities by the end of the month, R. Nagarajan, thefinance director, said in a phone interview from the capitalyesterday.
The company, which funds power projects includingMaharashtra State Power Generation Co. and MP Power GeneratingCorp., has $13.9 billion bonds outstanding, and has sold 618billion rupees of debt since Jan. 1, 2007, according to datacompiled by Bloomberg.
��Signal to the Market��
��We��re definitely not doing a bond issue before the16th,�� said Nagarajan, who expects Reserve Bank GovernorDuvvuri Subbarao to flag a reduction in rates as early as thisweek, lowering corporate debt costs by 10 basis points or more.��The RBI has to reduce by at least 25 basis points to give asignal to the market that high inflation has eased,�� he said.
All 12 economists surveyed by Bloomberg expect the ReserveBank to keep the key rate unchanged. Growth slowed to a morethan two-year low of 6.9 percent last quarter after policymakers made the fastest round of benchmark rate increases sincethe monetary authority was established in 1935.
Power Finance��s 25.9 billion rupees of 9.36 percentsecurities maturing in August 2021 yielded 91 basis points morethan equivalent-maturity government bonds yesterday, accordingto prices from the Fixed Income Money Market and DerivativesAssociation of India. The spread has shrunk from 105 basispoints on Dec. 5, the widest in almost eight weeks.
��Rates Steady��
Indian Oil Corp. (IOCL), the nation��s largest refiner, plans toraise at least 5 billion rupees selling five-year bondstomorrow, a person with direct knowledge of the matter saidyesterday. Mumbai-based Indian Oil will sell the bonds to yieldbetween 9.2 percent and 9.45 percent, said the person, who askednot to be identified as the matter is private.
The central bank signaled on Oct. 25 that it��s nearing theend of its monetary tightening policies, provided inflationdecelerates.!
India��s wholesale-price index probably rose 9.02 percent inNovember, according to the median estimate of 26 economistsahead of Commerce Ministry data to be released today. The keymeasure of inflation rose 9.73 percent in October, exceeding 9percent for an 11th straight month. The South Asian nation��sprice growth is more than twice the rate in China and fasterthan in Brazil and Russia.
��The market is expecting the RBI to keep rates steady morethan reducing interest rates,�� V. Srinivasa Rangan, Mumbai-based executive director at Housing Development Finance, said ina phone interview from Mumbai on Dec. 12. The Mumbai-basedcompany, which has sold 570 billion rupees of debt in the pastfive years, has to raise money for its financing needsregardless of the movement in benchmark rates, Rangan said.
Credit Protection
Five-year insurance in the case of a default in the dollar-denominated debt of State Bank of India, viewed as a proxy forthe sovereign, rose seven basis points to 375 basis pointsyesterday, from 161 at the end of last year, according to dataprovider CMA, which is owned by CME Group Inc. and compilesprices quoted by dealers in the privately negotiated market.
The contracts pay the buyer face value in exchange for theunderlying securities or the cash equivalent should a borrowerfail to adhere to its debt agreements.
Yields on 10-year government bonds gained about 51 basispoints this year as the central bank��s repurchase rate wasboosted 225 basis points. The yield on India��s 8.79 percent notedue in November 2021 fell four basis points to 8.41 percent inMumbai yesterday, according to the Reserve Bank��s tradingsystem.
Bond Returns
India��s bonds returned 5.3 percent this year, the fourth-worst performance among 10 Asia local-currency markets monitoredby HSBC Holdings Plc. The difference in yields between thenation��s 10-year sovereign debt and similar-maturity U.S.Treasuries was 644 basis points yesterday, after widening 181basis points IN 2011.!
Overseas investors�� combined ownership of government andcorporate debt increased 39 percent this year to a record $24.6billion as of Dec. 12, according to exchange data. Thegovernment caps their investments at $60 billion. Within thatlimit, global funds are allowed to buy $45 billion in corporatesecurities, including $25 billion in infrastructure financing.
Companies�� borrowing costs may rise because of a 16 percentdrop in the rupee this year, Asia��s worst performing currency. Aweakening currency increases refinancing costs on the $14.7billion of overseas debt maturing next year, according to datacompiled by Bloomberg. The rupee declined 0.7 percent to 53.225per dollar in Mumbai yesterday.
��Positive For Issuers��
Nuclear Power Corp. of India Ltd., the state-owned monopolywhich hasn��t sold debt since November 2009, said on Dec. 8 thatit had deferred a 15 billion-rupee bond sale until the financialyear starting April 1 because of increasing interest costs.
Indian companies sold 1.5 trillion rupees of bonds thisyear, down from 1.95 trillion rupees in 2010. Offerings in thefourth quarter declined to 257 billion rupees, the lowest levelsince the three months to June 30, 2008.
��Issuance will be higher in the next quarter than thisone,�� Parthasarathi Mukherjee, president of treasury andinternational banking at Axis Bank Ltd., the biggest rupee-denominated debt arranger in 2011, said in a phone interviewfrom Mumbai on Dec. 12. ��Expectations that RBI will keep ratesunchanged is positive for issuers and the bond market.��
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