Fund raising by listed companies through private placement of corporate bonds declined by 39 per cent to Rs 32,405 crore in the first two months of the current fiscal, and for the rest of the financial year also uncertain on expectations of further hike in interest rates. In comparison, Rs 53,253 crore was raised through the route during April-May 2021-22, according to Securities and Exchange Board data. India (SEBI) showed.
Notably, fundraising through the route fell to a six-year low of Rs 5.88 lakh crore in 2021-22 due to good performance of equities and aggressive fund distribution by banks at lower interest rates. “Moreover, the outlook for the rest of the financial year is quite uncertain as interest rates are expected to tighten further, liquidity will tighten and inflation will remain high. In such an environment, aggregate demand is likely to remain low, which will also reduce demand for credit,” Sandeep Bagla, CEO Trust MF, said.
Divam Sharma, co-founder, Green Portfolio, said several factors will determine the fund raising activities through modes such as interest rate cycle, sentiment revival in capex cycle and currency depreciation cycle. Fund raising by companies listed on BSE and NSE in April-May of the current financial year 2022-23 stood at Rs 32,405 crore. This was 39 percent lower than the year-ago period.
Listed firms have raised less money through bonds and the pace of taking loans from banks has also been slow. Bagla said it is possible that listed companies are sitting on surplus cash. “With rate hikes by global central banks to curb inflation, interest rates have increased and thus, investors in capital markets expect a higher rate of return. This essentially means that the cost of borrowing for listed companies through corporate bonds has gone up and is not as attractive as before,” said Sonam Srivastava, founder, Wright Research, SEBI Reg Investment Advisor.
Green Portfolio’s Sharma said bond prices have improved as a result of an increase in bond yields due to higher inflation and consequential interest rate hike expectations. In the first two months of the current fiscal year, 10-year bond yields in the US reached 3.3 per cent, prompting institutional (DII and FPI) investors to diversify long-term money in these bonds with expectations of currency depreciation. was. In terms of issuance, the period under review saw 137 issues as against 192 issues in April-May 2021-22.
Srivastava said that in the near term, central banks will hike rates, which will affect volumes in the corporate bond market. “Only companies that need immediate capital and need unplanned borrowing can go to the corporate bond markets,” he said.
Corporate bonds are the most flexible way of raising funds for listed companies. They use the money raised from corporate bonds to expand their product/service offerings, set up new manufacturing facilities, purchase plant and machinery, and spend on capital expenditures. It must be acknowledged that there are different ways for a company to raise funds, but they prefer to go the corporate bond route as it does not offer to dilute equity to existing promoters and shareholders.
The debt market is mostly used by financial sector companies that use the funds for further lending (as the economic cycle gathers momentum) and to foster a capital buffer. The non-financial group primarily deploys funds for general corporate spending, capital expenditure and inorganic growth opportunities, in addition to refinancing existing debt.
Apart from the capital raised through private placement of corporate debt, a total of Rs 1,682 crore came from public issue of corporate debt during the period under review. Experts believe that continued high to high liquidity in the system and overall low credit off-take will still keep the reliance on public issuance of corporate debt low.