India’s top rated companies issue bonds with borrowing rates close to government

India’s top-rated corporations are raising capital from the debt market at interest rates only slightly above the government’s, as investors rush to buy high-quality bonds amid supply short.

The spread between the five-year ‘AAA’ rated corporate and government bonds has fallen 17 basis points to 25 basis points since January, while the spread between both 3-year securities year, has halved over the same period.

Normally, companies pay higher interest rates to compensate for greater risk, but top-rated companies are currently paying close to 7.50% for 3-year funds and 7.55% for 3-year funds. 5 year debt.

“We are seeing this out of concern that the supply may or may not be,” said a trader at a major state-owned bank.

In the second half of last year, banks, pension funds and insurance companies waited for a supply of corporate bonds, which did not materialize, the trader added.

Even as the economy recovers, corporate bond issuances have fallen by more than a fifth from April to August this year compared with the same period before the 2019 pandemic.

This has resulted in higher rated companies being able to raise funds at close to the borrowing rate on government debt, the safest asset in the Indian market.

For example, infrastructure finance company

on Wednesday, sets the annual interest rate for bonds maturing in three years and five months at 7.32%.

The yield on the three-year government bond stood at 7.17% during that time on a semi-annual basis, if calculated annually, about the same.

Much of the lower rate benefits are restricted to ‘AAA’ rated companies.

Ajay Manglunia, managing director at


“Only when government-guaranteed interest rates on ‘AAA’ bonds normalize will people gain more interest in undervalued segments.”


Analysts say the spread could widen from here.

India’s liquidity surplus eased in September and fell into deficit this week for the first time in more than three years, sending a signal that the era of cheap money may be over.

That could prompt more companies to borrow first.

“In an environment of rising rates, everyone would rather freeze their costs than keep it uncertain,” Manglunia said.

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ICICI and have tapped the market for the past month and are expected to need more capital to support their capital position.

“As banks move around looking for liquidity from the market, they’re going to pay a price for that, and that’s going to be passed on to borrowers,” he said. Anand Nevatiafund manager at Trust mutual fund.

Additionally, as private investment increases, companies from sectors such as electricity, industrials and consumer goods are likely to seek funding for capital investment, investors said.

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