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Informist, Wednesday, Apr. 23, 2025

 

By Siddhi Chauhan 

MUMBAI – In a rare turn of events in April, several occasional issuers tapped the short-term debt market. A sharp cooling off in short-term borrowing costs and individual fund requirements made the market attractive to these uncommon issuers, market participants said.

 

So far in April, these occasional issuers, which include Bharat Heavy Electricals Ltd., Bharat Petroleum Corp. Ltd., Indian Oil Corp. Ltd., and Hindustan Petroleum Corp. Ltd. have raised INR 207.50 billion out of a total INR 1.14 trillion raised. SEIL Energy India Ltd. and National Thermal Power Corp. Ltd. also tapped the short-term debt market this month, data showed.

 

What makes these issuances out of the ordinary is that these issuers tapped the short-term debt market despite having no redemptions lined up this month, data compiled by Informist showed.

 

While Bharat Petroleum Corp. did not tap the short-term debt market at all in the previous year, Bharat Heavy Electricals had tapped the market only once to raise just INR 2.5 billion in September. Indian Oil Corp. had tapped the market six times between June and August to raise a total of INR 72.80 billion. Hindustan Petroleum Corp. had tapped the market four times in the previous year between June and October and raised INR 70 billion. NTPC issued CP six times in 2024 between March and December and raised INR 151 billion while SEIL Energy had raised INR 196 billion by tapping the market 15 times from January to December.

 

"In the market, if we (issuers) would have taken loans from banks before the rate cut, then we wouldn't have got funds at a discounted rate. It is only in the second week of April that we could have issued funds at discounted rates," a trader at an oil and gas company said. "But that was not the case with CP (commercial paper) rates. The market had discounted it (rate cut) quite earlier."

 

Even before the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points to 6.00% on Apr. 9, borrowing costs in the short-term debt market had fallen significantly. On Apr. 3, Informist had reported that short-term debt borrowing rates had fallen by more than a percentage point in the first two days of the new financial year in anticipation of a softer tone by the MPC and a sizeable liquidity surplus in the banking system. Rates on the three-month paper issued by manufacturing companies fell by 90 bps to 6.65-6.80% in those two days alone. This fall attracted these issuers to the market.

 

After the rate cut, the borrowing rates on two-month paper issued by manufacturing companies fell by around 20 bps to 6.40-6.60%, while the fall in the three-month paper rates was limited to five bps. 

 

However, some market participants speculated the reason why these non-frequent issuers tapped the market was beyond the fall in borrowing rates. Market players said a few issuers would have tried to make arrangements for some big outflows in advance and that is why they would have tapped the market.

 

Some issuers also tapped the market this month in order to cater to their individual funding needs, market participants said. "Typically, they (issuers) borrow short-term because it depends upon their inventory, how much they are building...," the fixed income head at a mutual fund said. "So sometimes what happens, if there is some payment pending from the government on subsidy side or if there is a mismatch then generally these people will come together in the market because everybody will have a mismatch... So that is the reason they just come and buy for one or two months and then when probably government flows happen or their flows match, then they will be off from the market."

 

Out of the 12 commercial papers issued by these fundraisers collectively so far, nine are set to mature in two months, as per data compiled by Informist. The fundraisers preferred two-month papers over the most liquid three-month paper due to a sharper fall in rates in this segment, market participants said. Apart from this, many issuers' demand for funds was limited to a shorter duration. Fundraising through a longer duration would have resulted in a higher cost even if borrowing costs cool off in the next two months.  

 

Market participants widely expect borrowing rates will fall further in the upcoming month as the Monetary Policy Committee of the RBI is expected to cut the benchmark repo rate at its meeting in June.

 

These expectations stem from the additional liquidity support provided by the central bank by buying bonds through auctions under its open market operations outside the ones already scheduled for April. On Apr. 17, the central bank bought gilts worth INR 400 billion through an additional open market operation auction. On Apr. 1, the RBI had announced that it would buy a total of INR 800 billion of gilts through auctions under the OMO this month through four operations. Of these, three auctions have already been conducted. If the remaining auction scheduled in the month is fully accepted, the central bank's government bond purchases through OMO auctions and the secondary market will top INR 4 trillion in 2025.

 

However, these rate-cut expectations have not yet been fully reflected in the short-term debt market. Market participants expect these expectations will be factored in by the market towards the end of May.  End

 

Edited by Ashish Shirke

 

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