Market conditions favourable for fund raising
Several listed firms and banks are planning to raise over Rs 18,000 crore through debt instruments in the next two days, taking advantage of the favourable market conditions and low interest rates. The total fund raising in September is set to cross Rs 50,000 crore, the third time since the beginning of the fiscal year 2023-24.
According to sources, some of the companies and banks that are scheduled to raise funds through non-convertible debentures (NCDs) or bonds are HDFC Bank, Axis Bank, ICICI Bank, LIC Housing Finance, Tata Motors, Mahindra & Mahindra Financial Services, and Shriram Transport Finance. The coupon rates for these debt papers range from 5.75% to 9.25%, depending on the tenure and credit rating of the issuers.
The fund raising spree comes at a time when the stock market is witnessing a strong rally, with the BSE Sensex crossing the 66,000-mark for the first time on Monday. The bond market is also stable, with the 10-year government bond yield hovering around 6.2%. The liquidity in the banking system is also ample, with the Reserve Bank of India (RBI) maintaining an accommodative stance.
Reasons for fund raising vary across sectors
The reasons for fund raising vary across sectors and companies. Some of the banks are raising funds to meet their capital adequacy requirements and to support their lending growth. HDFC Bank, for instance, plans to raise up to Rs 5,000 crore through perpetual bonds at a coupon rate of 6.15%. Axis Bank and ICICI Bank are also looking to raise up to Rs 5,000 crore each through tier-II bonds at coupon rates of 6.4% and 6.45%, respectively.
Some of the non-banking financial companies (NBFCs) are raising funds to refinance their existing debt and to diversify their funding sources. LIC Housing Finance plans to raise up to Rs 2,000 crore through NCDs at a coupon rate of 6.8%. Tata Motors plans to raise up to Rs 1,000 crore through NCDs at a coupon rate of 9.25%. Mahindra & Mahindra Financial Services and Shriram Transport Finance are also looking to raise up to Rs 500 crore each through NCDs at coupon rates of 7.75% and 8.5%, respectively.
Some of the companies are raising funds to invest in their expansion plans and to take advantage of the economic recovery. For example, Reliance Industries plans to raise up to Rs 3,000 crore through bonds at a coupon rate of 6.4%. The company intends to use the proceeds for its capital expenditure and general corporate purposes.
Fund raising trend likely to continue
The fund raising trend is likely to continue in the coming months as well, as many companies and banks have already obtained board approvals for issuing debt papers. According to data from Prime Database, as of September 22, there were 113 companies that had obtained board approvals for issuing NCDs worth Rs 2.23 lakh crore. Out of these, only 36 companies had raised Rs 31,028 crore till September 22.
The demand for debt papers is also expected to remain strong from investors, especially from mutual funds and insurance companies, who are looking for higher yields and better credit quality than government securities. The RBI’s open market operations and secondary market purchases have also helped in keeping the bond yields low and stable.
The fund raising activity through debt instruments reflects the confidence of the issuers and the investors in the economic outlook and the financial stability of the country. It also indicates that the corporate sector is gearing up for growth and expansion in the post-pandemic era.
