State-run fin companies line up Rs 20,000 cr bond issue despite rising yields

Mumbai: State-owned finance companies are tapping the bond market to raise funds as banks may take a few weeks to lower their benchmark lending rates despite RBI lowering the policy rates. REC, Nabard, and Indian Railway Finance Corp have collectively raised or are looking to raise over ?20,000 crore this week through a mix of short and long-term issuances. Punjab National Bank is also set to tap the market with ?5,000 crore in 10-year infrastructure bonds.

REC raised up to ?6,000 crore through two bond issuances on Tuesday, while India Infrastructure Finance is looking to raise ?2,000 crore via bonds maturing in March 2028. Similarly, the National Bank for Agriculture and Rural Development (Nabard) is looking to raise ?5,000 crore on Wednesday.

Other major issuers include Indian Railway Finance (IRFC), which plans to raise ?3,000 crore through 15-year bonds on Wednesday, and Punjab National Bank (PNB), which may seek bids on Thursday for ?5,000 crore in 10-year infrastructure bonds.

These fundraising efforts come as issuers look to lock in rates before further market volatility kicks in, despite bond yields climbing in recent weeks due to tight liquidity and external pressures.

Yields have climbed, contrary to some issuers' expectations of a decline following the RBI's 25 basis points rate cut. However, the market had already priced in the move, and bond rates continued rising due to tight liquidity, external pressures, and rupee weakness. Hudco's 10-year bonds were accepted at 7.29%, while Sidbi raised ?6,000 crore at 7.42%.

REC has raised funds at a higher rate compared to its January issuance. REC raised 15-year bonds at 7.28%, while a reissue of ?2,685 crore raised at an XIRR of 7.45%. This is higher compared to January when it raised 10-year bonds at 7.20%.

Some issuers expected rates to fall post policy, but yields rose due to persistent negative liquidity, external conditions, and rupee weakness.

"Many issuers were hoping for lower rates after the RBI policy, but yields actually went up because the market had already factored in the rate cut," said Venkatakrishnan Srinivasan of Rockfort Fincap LLP. "On top of that, tight liquidity, global factors, and a weaker rupee pushed borrowing costs higher. Large institutional investors have already met their regulatory bond investment targets, so they are now waiting for yields to rise further before making new investments. With this, we can expect a larger supply of state development loans (SDLs) in the market."

There is an uptick in corporate bond issuances this financial year, which has risen to ?7.3 lakh crore from April to December 2024, with average monthly issuance of ?0.88 lakh crore up from ?0.66 lakh crore per month a year earlier, per the Economic Survey. Despite rising yields, bond supply is expected to remain strong this month. Meanwhile, the RBI has doubled its upcoming security purchases to ?40,000 crore on February 13 to ease banking system liquidity.