Fundraising by listed companies through private placements of corporate bonds fell to a six-year low in 2021-22 at 5.88 trillion rupees due to strong equity performance and disbursement aggressive funds from the banks at a lower interest rate.
This was 24% less than the record 7.72 trillion rupees mobilized in 2020-21, according to data from the Securities and Exchange Board of India (Sebi).
Unless high government borrowing and the unfavorable interest rate cycle play spoilsport, the current fiscal year should be robust in terms of debt fundraising activity due to the increased demand for business credit in light of improving economic outlook, experts say. mentioned.
“In FY23, there should be some increase in debt through bonds as Indian companies step on the pedal for the next major phase of the investment cycle. potentially rising interest rate scenario, these bond issues should show good risk appetite looking for investors,” said Ricky Kirpalani, Lead Sponsor of First Water Capital Fund (AIF).
Vibhor Mittal, chief commercial officer of CredAvenue, believes that issuance volumes in the private debt market are improving due to increased demand for credit from issuers in light of the improving economic outlook.
However, the dampeners to the cause could be high government borrowing which can crowd out private placements and unfavorable interest rate cycles. In FY22, fundraising through private placement of corporate bonds was moderate at Rs 5.88 lakh crore.
It was the lowest level since 2015-2016, when listed companies raised 4.58 trillion rupees, the data showed.
In terms of emissions, 1,405 emissions were recorded during the financial year just ended, compared to 1,995 emissions in 2020-2021. Debt markets are primarily operated by companies in the financial sector which use funds to lend (as the economic cycle accelerates) and build up capital buffers.
The non-financial group deploys the funds primarily for general business expenses, capital expenditures, and for inorganic growth opportunities outside of refinancing existing debt.
The decline in private placement fundraising in FY22 compared to the previous year could be attributed to the good performance of equities in the stock market last year, said Kamlesh Shah – MD Share India Securities.
Explaining the reasons for the highest ever fundraising on the road in 2020-21, Shah said low interest rates and Reserve Bank of India (RBI) measures, increasing liquidity, helped the cause despite the pandemic.
According to CredAvenue’s Mittal, bond issuance fell sharply in FY22, largely due to no explicit government or RBI support, unlike last year when programs like that LTRO (Long Term Repo Transaction) and various credit guarantee programs leads to an overall increase in the market.
“Banks and NBFCs have been aggressive in disbursing funds through lending at lower rates due to abundant systemic liquidity; this has made it difficult for capital market investors to compete with the lending market on the yield offer,” he added.
Another downside could be companies’ moderation in working capital needs/utilizations despite revenue growth, said Abhijit Shrivastava, managing partner at Azalea Capital Partners.
“There has been a lot of cash available with banks and undrawn limits with various corporate borrowers, so it didn’t make sense for many companies to tap into higher cost bond debt,” Kirpalani said.
Apart from capital raised through private placement of corporate debt, a total of Rs 11,589 crore came from public issuance of corporate debt in the last financial year.
High to steady liquidity in the system and an overall decline in credit drawdowns would still maintain low reliance on public issuance of corporate debt. However, the first half of FY23 may see a slight increase through this fundraising channel, said Shalibhadra Shah, Chief Financial Officer of Motilal Oswal Financial Services.
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