ICRA: Government of India – Fully serviced bond issuances support growth in corporate bonds issuances

ICRA: Revenue growth in Q4 FY2019 hits six quarter low led by weak

The issuances of GoI-FSBs have significantly shot-up during FY2019 to Rs 64,192 crore during FY2019 as compared to Rs 15,095 crore during FY2018, and such borrowings are estimated to have accounted for 0.34% of GDP for FY2019 as compared to 0.09% of GDP for FY2018. The purpose of these borrowings has been to meet the expenditure towards various schemes of Government of India (GoI) by raising extra-budgetary resources (EBR) by various public sector entities (PSEs). Such expenditure may have otherwise required a budgetary provision from GoI in the year of these borrowings itself and increased the reported fiscal deficit. It is pertinent to note that, GoI’s net market borrowings have largely remained stable at Rs 4.1-4.3 lakh crore from markets during FY2017-19 and with GDP growth, the fiscal deficit as % of GDP declined marginally to 3.4% in FY2019E from 3.5% during FY2018 and FY2017.

According to Mr. Karthik Srinivasan, Group Head – Financial Sector Ratings, ICRA Ltd: “The total outstanding value of these GoI-FSBs stood at Rs 88,454 crore at the end of FY2019. The continuity of similar issuances in future will depend on GoI’s stance with respect to accounting for such spending as part of the budgeted expenditure or not. Given the pressure to reduce its fiscal deficit while continuing with social sector spending, similar issuances in future cannot be ruled out”.

ICRA: Government of India – Fully serviced bond issuances support growth in corporate bonds issuances

GoI-FSBs accounted for significant share of the overall corporate bond issuances during FY2019. In addition, decline in bond yields and preference for long-term debt to reduce asset liability mismatches supported the 75% rise in corporate bond issuance to Rs 4.42 lakh crore during H2FY2019 from to Rs 2.53 lakh crore during H2FY2018. In contrast, rising bond yields and widening interest rate differential between long-term and short-term rates had resulted a 12% YoY decline in corporate bond issuances during H1FY2019 to Rs 2.4 lakh crore Rs 2.7 lakh crore during H1FY2018. Overall the corporate bond issuances are estimated to have increased by 30% on YoY basis during FY2019 to Rs 6.8 lakh crore as compared to Rs 5.2 lakh crore during FY2018 as per the data from Bloomberg.

“Despite strong growth in corporate bond issuances during FY2019, bond issuances may face headwinds from the tighter systemic liquidity conditions, rise in yields on long-term government securities despite recent cut in policy rates by monetary policy committee and uncertainty on long-term interest rates, which will be driven by outcome of general elections and monsoons”, Mr. Srinivasan added.