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India Inc is increasingly turning to bonds to raise funds, especially after banks tightened norms and procedures in response to scams and rising non-performing assets (NPAs).
In the financial year ended March 31, 2018, Indian companies raised a whopping ₹6-lakh crore through private placements, via 2,706 issuances.
This is the second-highest issuance in terms of funds mopped up by India Inc since the private placement of corporate bonds opened in 2007. The highest was in FY17, when Indian companies raised about ₹7-lakh crore via 671 issuances.
“Traditionally, from the investors’ perspective, the interest generally comes from institutional investors. Now, with banks turning conservative in lending, mutual funds, high net-worth individuals (HNIs) and family offices played a larger role than institutions in FY18 in the corporate bond market,” said Alex K Babu, Managing Director at wealth management company Hedge Group.
“The issuances in FY18 were majorly by high-rated companies. The Assets Under Management of mutual funds, which are the major subscribers of bonds, have already crossed ₹22 lakh crore in March,” he added.
Among the public placements, Muthoot Finance topped the list with a ₹1,969-crore non-convertible debenture, followed by Mahindra & Mahindra Financial Services with ₹1,150 crore, and SREI Equipment Finance with ₹562 crore. Kosamattam Finance (₹443 crore), Srei Infrastructure Finance (₹351 crore) and Edelweiss Retail Finance (₹500 crore) were also on the list. The details of the firms that opted for private placements were not immediately available.
According to CARE Ratings, in FY18, corporate bonds were predominantly issued by banking/term lending (27 per cent), financial services (22 per cent) and housing finance (18 per cent). Certain other sectors that issued corporate bonds were power generation/supply (7 per cent), roads & highways (5 per cent), and housing/construction/real estate (4 per cent).
The credit rating agency observed that corporates had stepped up their dependence on commercial papers for their short-term borrowing requirements in recent years due to lower borrowing costs through these instruments.
In FY18, various corporate entities issued commercial papers to the tune of ₹22.92 lakh crore, which is 22 per cent higher than the issuances in the previous year (₹18.83 lakh crore in FY17).
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