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Indian corporate bond market participants are braced for a heavy supply of government-guaranteed bonds over the next few weeks, as state-run telecom giants MTNL and BSNL aim to raise $2.34 billion, three merchant bankers said.

Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd intend to raise an aggregate of 193.56 billion Indian rupees through government-guaranteed bonds, the bankers said.

MTNL plans to raise 109.10 billion rupees in November. It is set to seek bids next week and will meet bankers and investors on Tuesday, according to the bankers.

The telecom company is looking to issue bonds maturing in 10 years and will pay a semi-annual coupon, similar to how central government bonds are priced.

MTNL and BSNL both received the sovereign guarantee to raise 109.10 billion rupees and 84.46 billion rupees, respectively, in the current financial year, the government said in September.

Despite the guarantee, the spread over sovereign bonds may widen this time.

"The companies may have to pay a higher yield this time as the market is not that favourable," said one of the bankers, adding that the companies are being advised to spread out the borrowing.

MTNL had said in August that it plans to issue sovereign guarantee bonds worth 175.770 billion rupees and would use the proceeds to service older bonds and bank loans.

The last time MTNL tapped the bond market was in October-December 2020, when it raised an aggregate of around 65 billion rupees through two 10-year government-guaranteed bond issuances at a semi-annual coupon of 6.85% and 7.05%.

Meanwhile, BSNL may also launch a 10-year bond issuance at the end of November or in early December, bankers said.

The company had raised 85 billion rupees through 10-year bonds at a semi-annual coupon of 6.79% in September 2020. ($1 = 82.6850 Indian rupees)