Investor confidence rises as infrastructure bond demand spikes amid falling default rates
A significant decrease in default rates within the infrastructure sector has led to a surge in investor confidence, resulting in strong demand for recent infrastructure bond issuances from banks. These issuances have attracted bids several times higher than their initial offerings.
Data from the National Bank for Financing Infrastructure and Development (NaBFID) indicates that the default rate for investment-grade companies, which hit 4.5% in FY16, has steadily declined to below 0.5% over the past three years. This trend signals to investors that raising resources for infrastructure projects is a viable investment. “With default rates in investment-grade securities below 0.5%, investors are confident that funding infrastructure projects will yield returns,” stated Sujit Kumar, chief economist at NaBFID. He noted that institutional investors, including pension funds and insurance companies, are actively participating in these issuances.
In recent transactions, Bank of Baroda received bids totaling Rs 14,215 crore for its Rs 5,000 crore infrastructure bond issuance on September 6. Similarly, State Bank of India (SBI) garnered bids exceeding Rs 18,100 crore for a base issue of Rs 5,000 crore, while Indian Bank's Rs 2,000 crore issuance attracted bids worth Rs 13,680 crore. Bank of India also saw interest with bids totaling Rs 15,318 crore against its Rs 2,000 crore bond issuance. NaBFID's own bond issuance of Rs 1,000 crore received total bids of Rs 10,310.8 crore.
The head of treasury at a public sector bank commented on the positive outlook, noting that one bank recently raised funds through a 10-year bond at an interest rate below 7.30%, reflecting investor perception of lower risk in infrastructure projects.
Bank of Baroda successfully raised Rs 5,000 crore through 10-year infra bonds at a coupon rate of 7.26%—the lowest rate among comparable bonds issued recently by both public and private banks. To date, major banks including SBI, ICICI Bank, and Canara Bank have collectively raised Rs 53,811 crore this fiscal year for long-term infrastructure projects, while NaBFID has raised Rs 8,911 crore through infra bonds. These infrastructure bonds typically have a tenure of at least seven years and are aimed at financing long-term development initiatives.
