After raising ₹11,589 crore through public issues in FY22, companies have raised ₹5,747 crore through such sales in FY23 so far, data from the Securities and Exchange Board of India (Sebi) showed. Public bond issues tend to pick up during periods of rising interest rates and tight liquidity, and debt market experts said the second half of the financial year will see more such issues. While issue sizes are smaller as compared to those raised privately from institutional investors, experts are seeing renewed interest in this channel.
“The idea to look for public issuances is to diversify the investor base, instead of relying on the institutional space for private placements. Some large business houses are also discussing coming to the market now," said Ajay Manglunia, managing director and head of the investment grade group at JM Financial. The pipeline is ₹4,000 crore– ₹5,000 crore and, since there is still time till the end of the financial year, some large issuances could be expected, he added.
The primary difference between a public offering and a private placement is that the latter is exempt from filing an offer document with Sebi.
Typically, 50–60% of every public issue is reserved for individuals—retail and high net worth individuals (HNIs)—while the rest is for institutional investors. Retail investors looking for extra returns on their investments are benefiting as well, as they try to make up for the lag in deposit rates.
Mint reported on Monday that Gautam Adani-promoted Adani Enterprises Ltd plans to raise as much as ₹2,000 crore through a retail bond sale by December. Investors in the private placement market believe that a few months down the line, the coupon rate will be higher and therefore are reluctant to invest at this point in time, an analyst said on condition of anonymity.
The recent success of National Highways Authority of India’s (NHAI’s) infrastructure investment trust (InvIT) in raising ₹1,500 crore through a public issue seems to have enthused other issuers as well.
Experts said the corporate bond market will see more activity in the coming quarters as raising money from banks turns expensive. Although the Reserve Bank of India (RBI) has been raising interest rates since May, banks’ marginal cost of funds-based lending rate (MCLR) is yet to reflect the extent of the hike. The median MCLR rate of banks has increased 65 basis points (bps) to 7.9% between May and October, while the repo rate was raised by 190 bps in the same period. MCLR, an internal benchmark, is set to increase further as deposit rates rise.
“Private and public issuances of corporate bonds have not been too significant in the last few quarters. However, we are now seeing some signs of that picking up," said Rajani Sinha, chief economist, Care Ratings.
Sinha said that as bank lending rates go up, more corporates are expected to move towards the bond market.
However, retail participation in the bond market is quite low in India and is not going to change immediately. According to Sinha, it is a structural change which will take time, and therefore, does not see it happening in the near to medium term.
According to Seshagiri Rao, joint managing director and group chief financial officer at JSW Steel, there is no big fundraising happening from the retail markets through non-convertible debentures (NCDs) but mostly from the institutional side on a bilateral basis.
Ujjval Jauhari in New Delhi contributed to this story.
