The Indian Railway Finance Corporation (IRFC), the financing arm of the Indian Railways, has raised 20-year money at 18 basis points lower than what the sovereign bonds offer. The government-owned firm has raised ₹1,375 crore through 20-year bonds at 6.8%. In contrast a government paper maturing in 2041 offers an annualized yield of about 6.90%.
“The aforesaid bond issuance received a very good response from the investors comprising long term/ultra-long-term investors including primarily the provident funds. The issue was oversubscribed by six times as compared to the base issue size of Rs500 crore,” the company said in its statement.
Earlier this month IRFC had cancelled their plans to raise money from the bond market because of lack of demand. IRFC has an annual borrowing target in excess of ₹1 trillion during the current fiscal.
Typically corporate bonds in the domestic market are liquid for tenor up to 10 years. This issuance by IRFC could set a new benchmark yield curve for pricing similar issuances in the future. With the current issuance, the cumulative fund raising through 20-year bond issuance in the domestic capital market during the current fiscal has touched around ₹13,970 crore.
However, banks have been slowing down their investment in corporate bond issuances due to rise in bond yields. Data from the Reserve Bank of India (RBI) shows that banks have reduced their investments in corporate bonds and debentures in the past two months. Total investment in corporate bonds by banks was down to ₹5.64 trillion by February-end, a 3.5% fall in two months. Since January, government bonds yields have surged by 35% and yields on two-, three- and five-year corporate bonds have climbed 50-100 basis points.