Corporate bond issuances have have gown downhill during the first half of the calendar year, decreasing my as much as 8.2% at US $23.9 billion from US $26 billion over the same six-month period in 2010, according to a Reuters report. Offshore bonds from Indian issuers have doubled to US $4.7 billion from the first half of 2010 when the volume stood at US $2.2 billion.
With the Reserve Bank of India (RBI) hiking interest rates 10 times since March 2010, the difference in borrowing costs for a top-rated paper currently stands around 100 basis points. The issuances from the private sector have been higher, though, and the bond underwriting fees has gone up 40.6% to US $81 million in the first half of 2011 as compared to 2010.
“In an attempt to time the market, corporates have stayed away from issuing bonds in the first half. This year we have seen interest rates going up as RBI has raised key rates several times during the year," said Pradeep Madhav, managing director of STCI Primary Dealership.
State-run Power Finance Corporation has been the most active issuer, and with five bond offering, raised a total of US $2.6 billion. The bond issuances from the financial sector registered a growth rate of 10.2% at US $20.6 billion as compared to US $18.7 billion in the first half of 2010. Issuances from the Energy and Power sectors and industrials registered a rise of 53.9% and a slump of 27%, respectively. The volume of Indian Rupee bonds in the April-June 2011 quarter declined by 27.6% to INR 309 billion from INR 426.90 billion.
View: Many companies have infact gone for FCCB again. But the question is, 'Is it the right move?'
We beg to differ from most of the companies. As history shows that many of these companies which had raised capital through foreign bonds in 2008 are again facing a problem in 2011. Most of these debt papers are reaching maturities over the next two years.
And current economic scenario and the companies stock price shows that these companies are heading towards trouble. This story of over-leverage has become a nightmare for companies like Suzlon and many others.
The greatest of investors have hence always warned of buying into over-leveraged companies. The time has come to go through your portfolio and see which companies are getting over leveraged.