Fund raising via debt placement drops 39% to Rs 32,405 crore in April-May on hike in interest rates

Fund raising via debt placement drops 39% to Rs 32,405 crore in April-May on hike in interest rates
Fund raising by listed companies through private placement of corporate bonds dropped 39 per cent to Rs 32,405 crore in the first two months of the current financial year, and outlook for the rest of the fiscal is uncertain too on expectation of further hike in intetest rates. In comparison, Rs 53,253 crore was raised through the route during April-May 2021-22, data with the Securities and Exchange Board of India (Sebi) showed.

Notably, fund raising through the route plunged to a six-year low in 2021-22 to Rs 5.88 lakh crore owing to good performance of the equities and aggressive fund disbursal by banks at lower interest rate.

“Moreover, 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,” Sandeep Bagla, CEO Trust MF, said.

Several factors will dictate fund raising activities through the mode like peaking interest rate cycle, sentiment revival in capex cycle and peaking currency depreciation cycle, said Divam sharma, co-founder, Green Portfolio.

Fund raising by companies listed on BSE and NSE was subdued at Rs 32,405 crore in April-May of the current financial year 2022-23. This was 39 per cent lower compared to the year-ago period.

Listed firms have raised lower amount of funds through bonds and the credit off-take from banks has been slow as well. It is possible that the listed firms are sitting on surplus cash, Bagla said.

“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,” Sonam Srivastava, founder, Wright Research, Sebi Reg Investment Advisor, said.

Green Portfolio’s Sharma said that the rise in bond yields due to high inflation and resultant interest rate increase expectations have resulted in correction in bond prices. In the first two months of current fiscal, 10-year bond yields in the US had reached 3.3 per cent, this along with currency depreciation expectations had dissuaded the institutional (DIIs and FPIs) investors to commit long-term money in these bonds.

In terms of issuance, 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, Srivastava said.

“Only the companies that need urgent capital and have unplanned borrowing needs might go to the corporate bond markets,” she added.

For listed companies, corporate bonds are the most flexible way to raise funds. They use funds raised from corporate bonds to expand their product/ service offerings, establish new manufacturing facilities, buy plants and machinery and spend on capex.

It must be acknowledged that for a company to raise funds, there are distinct ways, but they prefer 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 (as the economic cycle gathers pace) and boost capital buffers.

The non-financial bunch deploys the funds mainly for general corporate expenses, capital expenditure and for inorganic growth opportunities apart from refinancing existing debt.

Apart from the capital raised via private placement of corporate debt, a total of Rs 1,682 crore came from public issuance of corporate debt in the period under review.

Experts believe that higher to constant liquidity in the system and overall lower credit off-take would still keep the dependence low on public issuance of corporate debt.

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