India Inc goes slow on local bonds as rates rise, investors turn sceptical

Indian corporates are fast tapping the international bonds market to raise funds for their operational expenses even as they reduce their presence in the rupee bond market. As bonds are costlier for companies and investors are more sceptical than the banks, CFOs say they are looking at other avenues for raising funds in the coming months as dollar bond rates are lower in the range of 100 to 250 basis points.

“For corporates with reasonable credit quality, the Indian bond market has become less of an option from a cost point of view. In addition, conditions imposed in the Indian bond market by investors post Franklin episode have also become very onerous," said Prabal Banerjee, President-finance of Bajaj group.

"Hence very few corporates are looking at the local bond market for resource mobilisation, since both, bank loans and the overseas bond markets are much more attractive," he said.

Executives with loan arrangers said many companies, including some public sector firms, want to complete a borrowing plan for the financial year before interest rates move up. "Those who have market acceptability are looking at cheaper short-term funds from the money market (commercial paper). The liquidity is ample, keeping rates at short end low," said a banker.

Data collated by this newspaper show that in January this year, companies raised Rs 72,143 crore as compared to Rs 78,800 crore in January 2020. Similarly, in February this year, India Inc raised Rs 45,505 crore as compared to Rs 69,000 crore in February 2020 (see chart). At the same time, Indian companies have raised $7.6 billion from the overseas market in January and February this year as compared to $21 billion raised in year 2020.

Investors are even demanding higher rates even from triple A rated companies leading to many companies postponing their plans. These companies include Sikka Ports, Jamnagar Utilities (personal entities of RIL promoter Mukesh Ambani), Grasim and Brookfield India Real Estate Investment Trusts saying they failed to get offers at the price they wanted.

Instead bankers said top companies  including Grasim, Hindalco, Birla Carbon, HCL Technologies will tap the overseas dollar bond markets for 10-year tenured bonds as interest rates overseas become more attractive.  Anil Agarwal owned Vedanta raised $1.2 billion recently as it prepares a war chest to acquire government companies.

One senior executive with a large bank said though rates are rising, corporates are not immediately rushing to switchover to loans from the market. They are more focussed on immediate needs (close of current financial year).