Money & Banking

Why firms are growing fond of bonds

RAJESH KURUP K RAM KUMAR Mumbai | Updated on January 10, 2018



Issuance to soar 40-50% over last year; driven by liquidity, lower rates, tighter bank norms

With banks tightening lending norms due to rising incidence of bad loans and wilful defaulters, Indian corporates looking to raise money are increasingly turning to bonds.

The appetite for bonds rose multi-fold this fiscal, with 266 companies mopping up ₹2.30-lakh crore in the period till July. In the year-ago period, 275 entities had issued bonds worth ₹1.70-lakh crore.

The drivers

In view of easy liquidity and lower interest rates, debt market experts expect FY18 to the biggest year for bonds, with corporates expected to exceed last year’s number by at least 40-50 per cent. In the last fiscal, a total of 671 issuers raised nearly ₹7.06-lakh crore.

“This year, we will definitely cross last year’s numbers…With the procedures for loans becoming tighter, companies are looking at directly going to the market to raise money,” said Alex K Babu, Managing Director at wealth management company Hedge Group.

“The Assets Under Management of mutual funds, which are the major subscribers of bonds, have already crossed ₹20-lakh crore in August. This reflects the change in the capital markets scenario,” he added.

That India Inc is increasingly turning to the bond market is validated by RBI data. Bank lending to the commercial sector came down to 37 per cent in 2016-17 from 50 per cent in the previous year.

This year, large corporates, banks, non-banking finance companies and public sector units were the dominant bond issuers. During April-July 2017, HDFC topped the charts, raising ₹24,550 crore through 17 bond issues, followed by the National Highways Authority of India (₹16,025 crore via 4 issuances) and Mahindra & Mahindra Financial Services (₹13,820 crore via 10 issuances).

Development lender NABARD (₹10,600 crore), HDFC Bank (₹10,000 crore), Axis Bank (₹8,500 crore), LIC Housing Finance (₹8,450 crore) and KSK Energy Co (₹7,875 crore) were the other top issuers.

Jiju Vidyadharan, Senior Director (Funds and Fixed Income Research) at rating agency Crisil said: “The year-to-date numbers for FY18 are higher by 35 per cent in value terms, the number of issuers being almost similar.”

Trend to continue

“Given the low interest rate environment, we see this trend continuing. The combination of factors such as banking sector NPA challenges and the implementation of RBI’s limits on bank borrowings for large corporates is expected to further increase the pace of shift from banks to financing though the bond markets, even for non-financial sector entities,” he added.

Published on September 07, 2017

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