From The Economic Times · Shilpy Sinha · · 1m 20s
RBI Measures May Boost Local Bond Demand
RBI's new measures could help Indian companies return to local bond market after rupee pressure.
In brief
RBI's new measures could help Indian companies return to local bond market after rupee pressure. RBI's recent steps may encourage companies that canceled bond issuances due to high yields to re-enter the market as rupee stabilizes. Originally reported by The Economic Times.
RBI measures expected to stabilize rupee
RBI's weekend measures provide cushion to rupee amid high overseas yields and rising hedging costs.
“RBI steps may help local bond market Indian companies may re-enter the bond market given recent central bank measures aimed at stabilizing the rupee”
Companies reconsider bond issuances
Some issuers that canceled bond offerings earlier due to higher yields may return to the market after central bank rate increases.
“Some issuers that cancelled bond offerings earlier because yields were higher than their bank borrowing costs may return to the market now”
Yield comparison for issuers
Five-year bonds for AAA-rated quasi-public companies offer yields around 7.90% versus bank borrowing costs of 8% for large banks.
“A large bank's external benchmark-linked lending rate is 8%”
Bond funding offers cash flow flexibility
Bond coupons are paid annually or semi-annually versus monthly bank loan interest, providing cash flow flexibility for companies.
“Bonds may also offer cash-flow flexibility, as bank loan interest is generally payable monthly, while bond coupons are often paid annually or semi-annually”
RBI dollar window for oil companies
RBI opened special dollar window for Indian Oil, Bharat Petroleum and Hindustan Petroleum to meet foreign currency needs.
“The RBI has opened a special dollar window for Indian Oil, Bharat Petroleum and Hindustan Petroleum to meet their daily foreign currency requirements from Monday”
External commercial borrowings continue
External commercial borrowings may continue within regulatory limits but depend on international market conditions.
“External commercial borrowings could continue where companies secure investors within applicable regulatory limits”
What happens next
Companies may return to bond market after RBI measures stabilize rupee and reduce borrowing costs.
“RBI's intervention could therefore help contain currency volatility without changing the funding outlook much”
What to remember
RBI's recent steps may encourage companies that canceled bond issuances due to high yields to re-enter the market as rupee stabilizes.
