Fund raising via debt placement touches 6-year low at Rs 5.88 lakh cr in FY22 mainly due to these two reasons

Fund raising by listed companies through private placement of corporate bonds 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.

This was 24 per cent lower from a record Rs 7.72 lakh crore mobilised in 2020-21, data with Securities and Exchange Board of India (Sebi) showed. Unless the high government borrowings and adverse interest rate cycle play spoilsport, the ongoing financial year is expected to be robust in terms of fund raising activities through the debt route on account of higher demand for credit from corporates in light of the improving economic outlook, experts said.

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"During FY23, there should be some increase in raising of debt through bonds as corporate India presses the pedal on the next major phase of the capex cycle. Also, with a potentially rising interest rate scenario, these bond issuances should evince good interest from risk seeking investors," Ricky Kirpalani, Lead Sponsor, First Water Capital Fund (AIF) said.

Vibhor Mittal, Chief Business Officer, CredAvenue, believes issuance volumes in the private debt market are improving on account of higher demand for credit from issuers in light of the improving economic outlook.

However, dampeners to the cause could be high government borrowings that may crowd out private placements and adverse interest rate cycles. In FY22, fund raising through the private placement of corporate bonds was subdued at Rs 5.88 lakh crore.

This was the lowest level since 2015-16, when listed companies had raised Rs 4.58 lakh crore, the data showed.

In terms of issuance, 1,405 issues were witnessed in the just concluded fiscal year as compared to 1,995 issues in 2020-21. 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.

The lower fund raising through private placement route in FY22 compared to the preceding fiscal could be attributed to good performance of the equities in the stock market last year, Kamlesh Shah - MD Share India Securities, said.

Explaining the reasons for highest-ever fund-raise through the route in 2020-21, Shah said low interest rates and measures by the Reserve Bank of India (RBI), boosting liquidity, helped the cause despite the pandemic.

According to CredAvenue's Mittal, bond issuances have seen a steep decline in FY22 principally due to the lack of any explicit support from the government or RBI, unlike last year, when programmes such as LTRO (long-term repo operation) and various credit guarantee schemes led to an overall boost in the market.

"Banks and NBFCs have been aggressive in disbursing funds through the loan route at lower rates due to abundant systemic liquidity; this has made it difficult for capital market investors to compete with the loan market on yield offering," he added.

Another factor for the decline could be subdued working capital requirements /utilizations of the companies in spite of growth in the top line, Abhijit Shrivastava, Managing Partner at Azalea Capital Partners, said.

"There has been ample liquidity available with banks and undrawn limits with various corporate borrowers. So, it didn't make sense for a lot of corporates to tap the higher cost bond debt," Kirpalani said.

Apart from the capital raised via private placement of corporate debt, a total of Rs 11,589 crore came from public issuance of corporate debt in the past fiscal year.

Higher to constant liquidity in the system and overall lower credit offtake, would still keep the dependence low on public issuance of corporate debt. However, the first half of FY23 could see an uptick through this route of fund raising, Shalibhadra Shah, Chief Financial Officer, Motilal Oswal Financial Services, said.