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

Fundraising by listed companies through private placement of corporate bonds dropped 39 percent to Rs 32,405 crore in the first two months of the current financial year, and the outlook for the rest of the fiscal is uncertain too on the expectation of a further hike in interest 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, fundraising through the route plunged to a six-year low in 2021-22 to Rs 5.88 lakh crore owing to the good performance of the equities and aggressive fund disbursal by banks at the lower interest rates.

''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 of Trust MF, said.

Several factors will dictate fundraising activities through the mode like piquing interest rate cycle, sentiment revival in CAPEX cycle, and peaking currency depreciation cycle, said Divam Sharma, co-founder, Green Portfolio.

Fundraising 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 percent lower compared to the year-ago period.

Listed firms have raised the lower amounts of funds through bonds and the credit off-take from banks has been slow as well. The listed firms may be 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 a correction in bond prices. In the first two months of the current fiscal, 10-year bond yields in the US had reached 3.3 percent, this along with currency depreciation expectations had dissuaded the institutional (DIIs and FPIs) investors to commit long-term money to 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 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.