Private issuers grab record share of India bond market

Private companies have overtaken state-run issuers to claim a record share of India's corporate bond market this year, as government-owned firms pulled back sharply from private placement borrowing, according to data from PRIME Database.

“The pullback comes down to pricing, not weaker demand for PSU debt”, said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap LLP.

Private sector issuers accounted for 72% of total private placement bond issuance between January and September, up from 62% in the same period last year.

Total issuance across all categories fell 6% to ₹7.84 lakh crore ($84 billion), from ₹8.35 lakh crore a year earlier.

Power Finance Corp. and REC Ltd. both withdrew planned bond
sales in August after declining to pay the yields investors were demanding on shorter tenors, even as both went on to raise longer-dated bonds with strong response.

"The issue was the price investors were demanding for particular tenors," Srinivasan said.

He attributed the shift to PSUs having cheaper funding alternatives right now, including a Reserve Bank of India facility letting them swap dollar borrowings at a fixed 1.5% rate through December, rather than any pullback in their capital needs.

"PSUs currently have considerable flexibility to choose between bank funding, short-term instruments, domestic bonds and foreign currency borrowings," he said.

He expects the gap to close quickly once pricing turns favourable again. "The PSU issuer can afford to wait for the right price," Srinivasan said, contrasting that with non-bank lenders, whose continuous funding needs leave them less room to hold out.

Bond sales by public sector undertakings collapsed 82% to ₹7,071 crore, from ₹38,534 crore. Borrowing by public sector financial institutions and banks, historically the dominant category, fell 23% to ₹2.02 lakh crore.

Private non-banking financial companies raised ₹3.25 lakh crore, up 8%, and enough to overtake public sector financial institutions as the largest issuer category for the first time in the dataset. Private manufacturing and services firms raised ₹2.25 lakh crore, up 23%.

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