Public issue of corporate bonds rose to a four-year high in the current financial year due to growing enthusiasm among retail investors and a rise in the cost of borrowing from banks, market participants said.
As of November 2023, companies and financial institutions raised Rs 13,742 crore through public issuance of non-convertible debentures, which was the highest since Rs 15,068 crore issuances in the financial year 2019-2020, according to data by the Securities and Exchange Board of India (SEBI).
As of November, Power Finance Corporation Limited raised the highest amount of Rs 2,824 crore through public issuance of NCD in the current financial year.
During the previous financial year, there were issuances amounting to Rs 9,211 crore. Market participants said that the total issuances might touch Rs 20,000 crore by the end of March.
Market participants said that retail and High Net Worth (HNI) investors are increasingly gravitating towards the public issuance of bonds. The allure lies in the perceived lack of issuer information available in private placements, particularly when these investors engage in secondary market transactions. Additionally, public issuances fall under the direct oversight of SEBI, providing an added layer of security. Notably, public bond issues are often backed by collateral, enhancing the appeal for risk-conscious investors.
The financial landscape has witnessed a noticeable surge in demand from retail investors for bond instruments. This surge is primarily attributed to changes in tax laws affecting Medium-Term Note issuances and debt mutual funds. Retail investors and HNIs are actively seeking alternative investment opportunities that promise higher returns compared to traditional avenues like banks.
“Most of the issuers who tap the public issue market are with lower credit rating and they find it difficult to garner large quantum through private placement route. Considering the limited investor appetite from institutional investors, these issuers prefer to diversify their borrowings,” said Venkatakrishnan Srinivasan, bond market veteran, founder and managing partner of Rockfort Fincap LLP.
Market participants said that this trend in public bond issuances would persist into the next fiscal year. The current fiscal year’s robust pipeline, especially in the remaining three months, indicates a continued appetite for public issuances.
“Everybody is keen to diversify and want to assess the retail pool which is becoming larger and, in fact, retail is also keen to get better rates,” said Ajay Manglunia, managing director and head (institutional fixed income), JM Financial. “This trend will continue. You will see more issuances next year. And there is a very healthy pipeline for the remaining three months,” he added.
The Reserve Bank of India is prodding NBFCs to diversify their funding requirements by lowering dependence on banks. In November, the regulator increased the risk weight on bank loans to NBFCs by 25 percentage points in all cases where the risk weight as per external rating of NBFCs is below 100%. This will increase NBFCs’ borrowing cost from banks.
First Published: Jan 09 2024 | 7:15 PM IST