Fundraising via NCDs drops 29% in FY21
NEW DELHI: Fundraising through issuance of debentures dropped 29 per cent to Rs 10,587 crore in 2020-21 due to decline in credit ratings and escalated risk of default on COVID-19 induced disruptions in capital intensive businesses.
Going forward, experts say, the ongoing financial year (2021-22) will see some attractive numbers in non-convertible debenture (NCD) fundraising.
" We should see money mobilization through NCD route to the tune of 2018-19 levels in FY22 as many companies are entering capex cycle, GDP is projected to grow in double digits and bond yields have started to go up making more case for NCD issuances," Divam Sharma, co-founder at Green Portfolio, said.
In addition, the success of the recent Muthoot Finance NCD offering has further opened the doors for many companies including NBFCs and real estate sector to launch NCD offerings, he added.
He further said companies like DLF, Piramal, Edelweiss, IIFL are already considering NCD issuances.
"With the government borrowing programme at an overdrive, this fiscal year might throw some unpleasant surprises to NCDs. They will face stiff competition from their higher rated and sovereign rated peers to corner investor money," Deepak Singh, Chief Business Officer at Reliance Securities, said.
NCDs are loan-linked bonds that cannot be converted into stocks and usually offer higher interest rates than convertible debentures.
As per Securities and Exchange Board of India (Sebi) data, companies raised total Rs 10,587 crore through issuance of NCDs to retail investors in the recently concluded fiscal year as compared to Rs 14,984 crore in 2019-20.
In 2018-19, firms had garnered Rs 36,679 crore through issuance of NCDs as such instruments offered lucrative investment option to retail investors, while just Rs 4,953 crore was mopped up in 2017-18.
"NCD issuances fell in FY21 due to the fall in credit ratings and escalated risk of default considering COVID-19 disruptions in many capital-intensive businesses. Also, many companies withheld their plans to expand considering the uncertainties," Sharma said.
Kaushlendra Singh Sengar, founder and CEO at INVEST19 said fundraising via NCDs lost its gleam in 2020-21 as the retail investors were shifted towards the equity asset class.
Most of the funds were mobilised to support lending activities, working capital requirements and other general corporate purposes.
Overall, in terms of volume, there were 18 NCD issues in the recently-concluded fiscal year as against 34 in 2019-20.
The entities that mopped up funds through the route in 2020-21 are IIFL Finance, Muthoot Finance, Sakthi Finance, Kosamattam Finance, KLM Axiva Finvest, Muthoot Fincorp, Muthoottu Mini Financiers, Edelweiss Financial Services and Power Finance Corporation, among others.
Interestingly, some of the companies opted for the route on more than one occasion to garner funds.
