Corporates shun NCDs in H1, prefer private placements to raise funds

In the first half of this fiscal, companies raising long-term debt capital have turned away from public issues in favour of private placements.

Companies raising debt capital through public issues of non-convertible debentures (NCDs) has fallen drastically — by 72 per cent — in the first six months of this fiscal, compared with the same period last year, according to data published by equities and commodities market regulator SEBI. NCD issues during April-September 2015 was just ₹1,249 crore, down from ₹4,418 crore in the first six months of 2014 and ₹5,763 crore in 2013.

Not just the quantum but the number of companies approaching the public for debt capital too has fallen to just four this year, from 12 and six in the two prior periods.

Contrast this with data on private placements of bond issuances. According to Mahavir Lunawat, Managing Director, Pantomath Capital Advisors, this figure stood at ₹2.42 lakh crore for the first six months of this year, compared to the year-ago figure of ₹1.45 lakh crore.

The number of issuances by private placement has also risen significantly, from 1,056 last year to 1,708 this year.

In general, activity in the corporate bond market picks up only in the second half of the fiscal, mostly with government issues of tax-free bonds. But even with that rider, corporates have been lying low in the NCD market.

Lakshmi Iyer, Chief Investment Officer (Debt), Kotak Asset Management, believes this indicates a general slack in the debt market this year, Also, portfolio managers have directed the limited inflows in fixed income schemes to government securities and not corporate debt.

Instead of issuing long-tenor NCDs, Iyer said, companies have been turning to raising money through short-term commercial papers (CPs) to bridge capital requirements before banks began to lower lending rates. “There was the expectation of lower lending rates in the market before the RBI made the cuts. So until then, corporates were turning to short-term commercial papers; so CP issuances were on the rise this year.”

On the other hand, private placements have always been more attractive because they are easier and cheaper than public issues. According to Lunawat, the trend now is for companies to meet their debt requirements by directly approaching investors through the private placement route.