Fund raising via debt placement drops to ₹32,405 cr in Apr-May
PremiumDuring April-May 2021-22, ₹53,253 crore was raised through the route
In the first two months of the current financial year, fundraising by listed companies through private placement of corporate bonds dropped 39% to ₹32,405 crore.
Also, the outlook for the rest of the fiscal is uncertain on the expectation of a further hike in interest rates.
In comparison, during April-May 2021-22, ₹53,253 crore was raised through the route, data with the Securities and Exchange Board of India (Sebi) showed.
Notably, owing to the good performance of the equities and aggressive fund disbursal by banks at the lower interest rates, fundraising through the route plunged to a six-year low in 2021-22 to ₹5.88 lakh crore.
'Sandeep Bagla, CEO of Trust MF said that the outlook for the rest of the financial year is quite uncertain as interest rates are expected to firm up further, liquidity to get tighter and inflation to remain high. In such an environment, aggregate demand is likely to remain subdued thereby suppressing the demand for credit as well, he added.
According to Divam Sharma, co-founder, Green Portfolio, several factors will dictate fundraising activities through the mode like piquing interest rate cycle, sentiment revival in CAPEX cycle, and peaking currency depreciation cycle.
Fundraising by companies listed on BSE and NSE was subdued at ₹32,405 crore in April-May of the current financial year 2022-23. This was 39% lower compared to the year-ago period.
Listed firms have raised the lower amounts of funds through bonds and the credit off-take from banks has been slow.
'Sonam Srivastava, founder, Wright Research, Sebi Reg Investment Advisor said that with global central banks doing rate hikes to curb inflation, interest rates have risen and thus, investors in the capital market expect a higher rate of return. This invariably means the cost of borrowings for listed companies through corporate bonds has increased and is not as lucrative as before, she added.
Green Portfolio's Sharma said that the rise in bond yields due to high inflation and resultant interest rate increasing expectations have resulted in a correction in bond prices.
In the first two months of the current fiscal, 10-year bond yields in the US had reached 3.3%, this along with currency depreciation expectations had dissuaded the institutional investors to commit long-term money to these bonds.
As far as issuance is concerned, 137 issues were witnessed in the period under review as compared to 192 issues in April-May 2021-22.
In the near term, rate hikes will be executed by the central banks, which would hamper the volume in the corporate bond market.
Corporate bonds are the most flexible way to raise funds for listed companies which use funds raised from corporate bonds to expand their product/ service offerings, establish new manufacturing facilities, buy plants and machinery and spend on CAPEX.
For a company to raise funds, it prefers going the corporate bond route as it offers existing promoters and shareholders non-dilution of equity.
The debt markets are mostly tapped by the financial sector companies who use funds for onward lending and boost capital buffers.
Apart from refinancing existing debt, the non-financial bunch deploys the funds mainly for general corporate expenses, capital expenditure, and inorganic growth opportunities.
A total of ₹1,682 crore came from public issuance of corporate debt in the period under review, apart from the capital raised via private placement of corporate debt.
According to experts, higher to constant liquidity in the system and overall lower credit off-take would keep the dependence low on public issuance of corporate debt.