Firms opting for private placements, rather than issuing bonds in public

Companies are opting for private placements, rather than issuing bonds in public. In any case, private placements used to dominate the corporate bond space, but this seems to have become the norm now as companies are not getting money from the bond market easily. 

Considering more than 70% of the market is dominated by non-banking financial companies (NBFCs) struggling to raise funds from the market, this finding by CARE Ratings is not surprising.

The rating agency took the data from various sources, and found that private placements in the first half of FY20 was Rs 2.5 trillion as against Rs 1.77 trillion last year, whereas, public issues were lower at Rs 8,034 crore as against Rs 27,218 crore last year.

At the same time, the commercial paper (CP) market “has been quite subdued and the growth in outstanding paper has increased by just 4.8 per cent between March 31 and September 15, 2019 compared with 72 per cent last year,” said CARE Ratings. The main reason for this is the near absence of NBFCs from the market.