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Despite extensive efforts put by the regulators to strengthen the bond market, private placements still hold a significant proportion of 98.5 per cent in the market, says a report. It is worth noting that private placements are the sale of stock shares or bonds to buyers who are already selected by the company, which is not the case with Initial Public Offerings (IPO).
However, consistent efforts by the regulators to build a sustained market have led to the rise of outstanding bonds by almost four-fold to ₹39.6 lakh crore in FY22 from ₹10.5 lakh crore in FY12, according to an analysis by Bank of Baroda's economists. Between FY21 and FY22, outstanding corporate bonds increased by 11.2 percent.
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In FY22, a meager 2 per cent of the total ₹6 lakh crore issued corporate bonds included public placements. This was way too less than the 98 per cent of private placements in corporate bonds. Public issuances of bonds inched further to 1.5 per cent so far this fiscal, said Bank of Baroda economist Aditi Gupta.
Issuance of corporate bonds has impressively increased from ₹3 lakh crore in FY12 to ₹7.8 lakh crore in FY21. It moderated to ₹6 lakh crore in FY22. In FY22, corporate bond yields rose in line with G-Sec yields amidst a higher-than-expected borrowing programme by the government, elevated oil prices, and rising global yields.
The booming corporate bond market has managed to sustain the trend of private placements for the last 10 years. While private placement accounted for 88 per cent of the total issuance in FY12, the same rose to 98 per cent in FY22, and further to 98.5 per cent so far this fiscal, she said.
According to Aditi Gupta, the major reason for this is that companies still hesitate to get involved in public issues. Mainly because of the cumbersome process involved in it.
Despite a promising increase in the corporate bonds outstanding in the last decades, there has been phenomenal growth in outstanding bank credit during the same period. While corporate bonds outstanding rose from ₹10.5 lakh crore in FY12 to ₹39.6 lakh crore in FY22, outstanding bank credit rose from ₹29.6 lakh crore in FY12 to ₹61.7 lakh crore in FY22, which is around a two-fold increase the amount.
Financial service companies account for more than 70 per cent of issuance in the market. The services sector leads the non-financial segment averaging 10 per cent during the last decade, followed by the manufacturing sector averaging 5.6 per cent during this period.
The Indian share market is heavily skewed toward higher-rated papers. According to the RBI data, as much as 80 per cent of issuances in FY22 were AAA-rated, and 15 per cent were AA-rated, leaving just 5 per cent for high-yielding junk papers.
(With inputs from PTI)