Skip to main content

Better rated firms moving to bond mkt, says RBI report

By
Better rated firms moving to bond mkt, says RBI report
Better rated companies are moving to the bond market, even as bank loans continue to remain an efficient financing tool for lower rated firms, the Reserve Bank of India’s financial stability report said.
Better rated companies can easily tap the bond market, and their borrowing costs are usually nearer the risk-free rate of sovereign treasury bills, rather than banks’ marginal cost of funds-based lending rate (MCLR). And, there is a significant differential, about 185 basis points between risk-free rates and the bank MCLR. One basis point is a hundredth of a percentage point
If the risk-free rate (govt securities) is 6.57 per cent for five-year money, AAA-rated companies, on an average, raise their fund at 7.39 per cent from the market. The bank MCLR is 8.41 per cent for the tenure
If a company with A rating has to raise funds from the market, the coupon it has to pay would be 10.2 per cent, according to the RBI. This shows companies below A+ will still be better off borrowing from banks. The differential has expanded the scope for disintermediation of bank financing by corporate bonds in case of quality corporates, the report released on Thursday said.
“Corporates might find it advantageous to place issues with mutual funds rather than accessing bank finance,” said the FSR report, adding such disintermediation trends are consistent across tenors. “To stem the erosion in the quality of credit portfolios, some well-capitalised banks have reportedly started resorting to risk-free benchmark based pricing, as opposed to MCLR-linked pricing.”
The spread differential between equivalent maturity sovereign bonds and highest rated corporate bonds are now around 80 basis points, less than the 100-125 basis points generally observed in the market.According to the FSR, foreign investors are increasingly keeping their investment position unhedged and the dollar borrowing cost for Indian companies would be benign because of the recent rating upgrade by Moody’s. These together give more reasons for top Indian companies to tap the bond route, rather than rely on bank financing.
The Business  Standard, New Delhi, 23rd December 2017

Comments

Post a Comment

Popular posts from this blog

Data storage norm splits digital payments industry

By
Data storage norm splits digital payments industry  India’s nascent digital payment industry could be thrown into disarray due to the demand by the Reserve Bank of India (RBI) that all user data be stored within the country, fears an industry grouping, which has termed the decision as “heavy-handed”, even as others, including the country’s largest digital payment provider Paytm, have hailed the move.  In a bid to narrow the growing schism, the industry is planning to send a formal representation to the regulator highlighting its concerns, a top official told ET.  “We are trying to build a consensus on the issue," said the person adding that the representation to the central bank will be ready this week.  RBI on April 6, mandated all payment companies—global and local—to set up data storage facilities within India by October. The stringent six-month deadline has attracted the ire of several sections of the industry that fear it will lead to a disruption of wel...
18 comments
Read more

Offer’s for all of you

By
Great Bumper Dhamaka Offer’s for all of you... It's Time to see your Business Online, WebeCreator Offer Website Designing with domain & Email @ nominal charges. For a year For More information visit us http://goo.gl/KlpppF call on 9890151261/9773197533  drop a mail to sales@webecreator.com
Post a Comment
Read more

Sebi to finalise options in commodities today

By
The Commodity Derivatives Advisory Committee of the Securities and Exchange Board of India ( Sebi) will meet on Friday with senior officials of the latter, to give a final shape to the rules on options trading in commodity futures, beside revising the warehousing norms to ensure good delivery on settlement. The decision taken, after discussing with the advisory committee, will be placed before the regulator’s board, to finalise the regulations. According to knowledgeable sources, three commodities in each segment, agricultural and non- agricultural, have been proposed for introducing options. It appears commodities from the soya and guar segments are preferred in the former. From the non- agri segment, it is likely that gold, silver and crude oil will be finalised. All these These have better liquidity and both the National Commodity and Derivatives Exchange and the Multi Commodity Exchange, respectively, will be able to introduce the options. In the equity segments, options ar...
17 comments
Read more