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It is raining bond issues but not for all

LiveMint logoLiveMint 05-07-2017 Aparna Iyer

Indian companies raised an aggregate $36.5 billion from onshore and offshore bond markets in the first six months of 2017, the highest in four years. This is a 57% growth from the corresponding period of 2016. Both onshore and offshore fund raising have grown sharply, with the latter doubling from the year-ago period. While this may look like a great harbinger of a long-awaited pick-up in investment demand, it is not so.

More than 60% of the funds raised are by financial institutions, especially those who cater to the retail segment such as affordable housing, automobiles and consumer durables. Indeed, historically, financial companies, including banks, have dominated the bond issuance market and the latest data only confirms this long-term trend. The fact that state-owned Power Finance Corp. (PFC) was the most active with 13 issuances to raise an aggregate $3.5 billion proves this point.

A second point to note is that while the amount raised through bonds has grown, the number of issues has actually dropped. In the first half of 2013, when companies had raised a total of $37.1 billion, the number of issues was well over 350. However, this year, the number of issuers is less than 300. This means that companies were able to raise a large sum of money from the bond market at one go. The fall in bond yields and the rise in liquidity this year is the primary reason for this.

A good question would be where are the funds going if financials are raising money? PFC is a power financier and given that companies from this sector were the second highest fund-raisers after financials indicate that the energy and power sector took the lion’s share of proceeds from the bond market. The top two bond issuances by size were from UP Power Corp. and Bajaj Finance. The first is a power supplier and the second is a non-banking finance company lending primarily to the retail sector. Leveraged balance sheets and an increase in inventories have ensured that manufacturing companies refrain from raising funds, especially through debt. 

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