Global investors lapping up low-grade bonds
HNIs, family offices and overseas investors betting big on such financial instruments that offer high yields regardless of credit ratings
image for illustrative purpose
Global investors lapping up low-grade bonds
Earlier there was no market for such low-rated papers. Now, we see a lot of issuances especially after Budget where taxation arbitrage has been taken away from MLD and mutual fund investors because of indexation
- Ajay Manglunia, MD & head Investment Grade Group at JM Financial, tells Bizz Buzz
Mumbai In the hunt for high yields, a few investors, especially corporate HNIs, family offices and overseas investors have started betting on low-grade financial instrument which offer high yields with a proper structure, irrespective of ratings.
The largest issue of Shapoorji Pallonji (SP) group company Goswami Infra is such an example as it attracted a good bidding interest. For the investors, it offered a safe investment bet from the risk adjusted yield perspective. The yield offered by the SP group co was at 18.75 per cent for a tenor of close to just over two year. It was rated a BBB- instrument with a size of Rs14,300 crore. It attracted bids in excess of Rs15,000 crore. The group is owned by business tycoon, Shapoorji Mistry.
It was oversubscribed and a lot of foreign investors have invested as they are desperate for higher yield.
SP group has a lot of ongoing projects and need liquidity on urgent basis, so they made their offer quite attractive from the yield perspective for the investors.
Talking to Bizz Buzz, Ajay Manglunia, Managing Director & head Investment Grade Group at JM Financial, says: “Earlier there was no market for such rated papers. Now, we see a lot of issuances especially after the Budget where taxation arbitrage has been taken away from MLD and mutual fund investors because of indexation.” MLD stands for market linked debentures. Once the tax arbitrage is gone away, people have started looking for a better tax adjusted return. That’s why we see a lot of interest in this space. Major investors in this space, apart from a few FPI’s, were Stanchart and DB who seem to have bought in bulk, he added. The company raised Rs143 billion ($1.7 billion) by selling zero-coupon bonds via private placement a week ago, says a report by Bloomberg.
Cerberus Capital, Varde Partners, Davidson Kempner, Canyon Partners and SSG Capital, Farallon are some of the other global investors who have also chipped in, sources familiar with the development told Bizz Buzz.
