Fund raising via NCDs drop 67% on low investors' confidence in Apr-Aug FY20

NCDs are loan-linked bonds that cannot be converted into stocks and usually offer higher interest rates than convertible debentures

States' issuance of discom bonds has also worried the FPI, and they see it as a potential stress

2 min read Last Updated : Sep 18 2019 | 6:01 PM IST

Indian listed firms raised around Rs 7,000 crore by issuing NCDs in the first five months of this fiscal, a plunge of 67 per cent year-on-year, due to decline in investors' confidence following a series of payment defaults.

In comparison, companies had mobilised Rs 21,048 crore through this route in April-August 2018-19, according to latest data with Securities and Exchange Board of India (Sebi).

However, in terms of volume, there were 14 non-convertible debenture (NCD) issues in the first five months of 2019-20 as against 6 in 2018-19.

The companies raised money for funding expansion plans, retiring debt, supporting working capital requirements and other general corporate purposes.

NCDs are loan-linked bonds that cannot be converted into stocks and usually offer higher interest rates than convertible debentures.

Market analysts said fund-raising through NCDs has fallen during the period under review, but the number of companies opting this route to mop-up funds has sharply increased.

"Investors' confidence has gone down due to several factors such as downgrades, illiquidity and unsustainable borrowings. The recent crisis at DHFL, Essel Group amd others have also hit the confidence of investors," Samco Head of Mutual Fund Distribution Omkeshwar Singh said.

The number of companies flocking towards the NCD route has gone up because firms are not able to raise capital from banks and NBFCs, he added.

Firms that tapped the NCD route during the current fiscal are -- L&T Finance, Muthoottu Mini Financier, Shriram City Union Finance, Magma Fincorp, Kosamattam Finance, Muthoot Homefin (India) Ltd, SREI Infrastructure Finance, JM Financial Product, ECL Finance, Muthoot Finance, Indiabulls Consumer Finance, Shriram Transport Finance Company and Tata Capital Financial Services.

Individually, Tata Capital Financial Services raised Rs 2,158 crore in the period under review as against a target of Rs 500 crore and L&T Finance raked in Rs 1,000 crore, double from its base size.