MUMBAI: A dry spell for retail bond investors appears to be ending, with non-banking finance companies quadrupling fund raising in the first quarter of this financial year compared with all of last year and a similar amount of borrowings planned in the next three months.
Companies including ECL Finance, at least one Tata group firm, PNB Housing Finance and Aadhar Housing, an arm of Wadhawan Global Capital, plan to raise as much as Rs 19,000 crore collectively over the next one to three months, three people familiar with the matter told ET.
Tata Capital Financial Services and Tata Housing are said to have appointed three investment bankers and may finalise the terms this week to raise up to Rs 10,000 crore.
Emails sent to Tata Cap remained unanswered until publication of this report, while other companies could not be contacted immediately. Tata Housing denied it would offer retail bonds to the public.
“Tata Housing will not go for public issuance of retail bonds to raise Rs 5,000 crore,” a company spokesperson said.
JM Credit Solutions and Dewan Housing Finance may hit the public bond market again to raise residual sums that they did not in their first tranche. PNB Housing has already obtained board approval.
“Retail bond sales are mutually beneficial for both investors and issuers,” said Ajay Manglunia, executive vice-president for fixed income at Edelweiss Finance. “Non-banking companies now find it easy to raise money from the retail market rather than institutional market, constrained by contracting liquidity. Savers can earn about 200 basis points higher returns from these retail bonds.”
Companies sold about Rs 4,000-5,000 crore worth of bonds through public issuances during 2017-18, according to estimates by Edelweiss Finance. Thats about a quarter of the total bond sales of about Rs 19,200 crore between April and June this year.
“There is a traction for retail bonds beginning this financial year,” said Ashish Agarwal, executive director at AK Capital. “The rate trajectory suggests only a brief spell for a couple of policy rate increases. Within this, companies are aiming to tap the retail money as institutions are holding back their investment decisions amid uncertainties.”
Retail bonds that are expected to hit the market may offer rates in the range of 9-10% across three, five, seven and 10-year maturities, market sources said.
“Last two years, none of the debt mutual fund schemes have performed up to the mark,” said Vikram Dalal, managing director at Synergee Capital. Investors have switched to retail bonds as they seek to earn higher interest income regularly, he said.
“Also, the widening difference in rates between bank fixed deposits and retail bonds has attracted retail investors,” Dalal said.
State Bank of India, the countrys largest, offers 7.25 per cent with five to 10-year maturities, which is at least 175 basis points lower than retail bonds. The gap was about 150 basis points six months earlier.
Retail exuberance to bonds should come with a rider as retail bonds are not billed as liquid as bank fixed deposits, although the latest large size of sales has aided the increase in secondary market liquidity for tradable debt securities.