Fundraising via bonds falls in H1

Declines 25 per cent as India Inc's capex remains low; overseas loans remain flat

Fundraising by Indian companies through bonds fell almost 25 per cent in the first six months of 2016 compared to the same period last year, indicating a lull in corporate investment.

Fundraising from sources abroad was marginally up at $11.84 billion from the same period last year as corporates re-financed old loans instead of investing in new capacities.

CEOs say they will now begin investing as the economy picks up pace due to steps taken by the government.

“The Centre is taking several steps to encourage private investment. But, the state governments should simultaneously take more steps to make it easy to do business,” says Harsh Goenka, chairman of the RPG Group, whose companies Ceat and KEC International are investing in new facilities to take advantage of the Make in India drive.

Indian companies raised Rs 1,96,637 crore through bonds since January against Rs 2,62,420 crore in the first six months of 2015, according to Bloomberg. Fundraising from overseas sources was $11.84 billion, up 7.34 per cent from $11.03 billion in the first six months of 2015. In 2015, Reliance Industries was the top fund raiser from overseas in order to invest in new petrochemical capacity and roll out its wireless telecom network Jio, which will cost $12 billion. The company is now reaching the end of its capex plans, which is reflecting in fund raising this year, bankers say. Most of the infrastructure, steel and power sector companies are still grappling with low capacity utilisation.

“Fundraising is directly linked with the investment climate, which is yet to pick up. Normally, with the interest rate difference high between overseas and domestic sources, companies with big investments access overseas markets. As the investment cycle picks up, the preference will be for domestic debt to begin with though the larger companies will diversify,” says DR Dogra, CEO and MD of CARE Ratings.

In a report dated June 28, financial powerhouse Morgan Stanley says private capex, which accounts for about 22 per cent of overall investment, remained weak over the past four years. It declined from 12.8 per cent of the GDP (gross domestic product) in 2010-11 to seven per cent in 2015-6. This is mirrored in CMIE’s capex data, which is also showing weakness in private projects under implementation in 2016, a report by economist Chetan Ahya says.

The firm cites four main reasons for the delay in private corporate capex recovery. These are slowdown in demand leading to low capacity utilisation; low corporate sector pricing power adversely affecting corporate sector profitability; high real rates for the leveraged corporate sector; and the weak balance sheets of the banking sector.  “We believe that in the initial period we will see a pick-up in capacity utilisation levels as consumption demand picks up and an improvement in corporate profitability. This will create the base for private corporate capex to kick in, which we think will take 12-18 months to recover on a full-fledged basis,” the report says.