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    High-yield NBFC bonds see strong overseas demand

    Synopsis

    “This unusual situation of getting better offshore yields is attracting buyers,” he said.

    BondsAgencies
    Government-owned Rural Electrification Corp and Power Finance Corp are nearly trading on par with yields falling about 20 bps.
    Mumbai: Non-banking finance companies (NBFCs) have turned out be the darlings of global investors who are now betting big on dollar bonds after the finance minister announced a relief package for the sector last week.

    High-yield bonds sold by Manappuram, Muthoot, IIFL Fin, Shriram Transport, Indiabulls Housing have rallied in just about a week’s time with yields plunging as much as 500 basis points (bps). This could well pave the way for local shadow banks tapping overseas capital. When yields fall, prices rise. A basis point is 0.01 per cent.

    “Indian NBFC USD bond papers are among the best-performing bonds after the government announced relief package last week,” said Rahul Banerjee, CEO at BondEvalue, a Singapore-based fintech company with dedicated focus on Asian bond markets. “In fact, they were among the best performers across Asia this week.”

    “This unusual situation of getting better offshore yields is attracting buyers,” he said.

    IIFL Finance bonds are the largest gainer as they now yield about 18 per cent versus 23 per cent at the beginning of last week. Bond yields for Indiabulls Housing Finance and Manappuram Finance dropped 300-400 bps.

    “The government’s stimulus package is well structured as it addresses solvency concerns over and above the liquidity issues,” said Hemant Mishr, founder of Scube Fixed Income, a Singaporebased fund. “It has raised investor confidence and sparked buying interest from instructional investors,” he said.

    These NBFC papers changed hands in the secondary market in what many term “still discount trades” with prices quoting less than face values. Existing investors were seen booking profits while a new set of buyers including asset managers, pension funds were seen subscribing those offshore debt securities. Muthoot and Shriram Transport saw their bonds yielding 100-200 bps lower.

    Overseas investors are closely following central bank/government actions at a time when the coronavirus outbreak created an economic crisis. Beneficiary companies, too, need to pull up socks. Given that many of those NBFCs are debutant issuers in the global bond markets, investors will keep watchful eye on performance parameters.

    “It is important that they have a good track record for follow-on offerings and for other Indian companies to tap the global bond markets,” said Mishr from Scube.

    Government-owned Rural Electrification Corp and Power Finance Corp are nearly trading on par with yields falling about 20 bps.

    Finance minister Nirmala Sitharaman announced a Rs 75,000-crore package aimed at helping NBFCs tide over a liquidity crunch caused by risk aversion among investors.



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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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