Fundraising via corporate bonds shrinks 1.1% in FY20 as firms favour ECBs

The dip was also due to low demand for investment, as capacity utilisation remained stagnant in the Indian economy

India Inc raised Rs 6.72 trillion through bonds from domestic market in FY20, recording a 1.1 per cent contraction over the Rs 6.79 trillion raised in FY19, according rating agency CARE Ratings.

The dip in fund raising activity was partly due to low demand for investment, as capacity utilisation remained stagnant in the Indian economy. Also, corporates used alternative sources like external commercial borrowings to garner funds, CARE said in a statement. CARE sourced data from Centre for Monitoring Indian Economy (CMIE) and PRIME database for analysis.

After recording a contraction of nine per cent in FY18, there was a moderate pickup of 1.4 per cent in FY19. Thereafter, corporate bond issuances have again recorded a decline in FY20. This is the second time in the past four years that corporate bond issuances have declined.

 

CARE said about 98 per cent of the total issuances in FY20 were via the private placement route as against 95 per cent seen in FY19. The public issuances in FY20 were around Rs 15,000 crore, 60 per cent lower than a year ago.

Corporate bonds are an important source of long-term finance for various entities apart from equity markets, external commercial borrowings and internal resources. These funds are generally deployed for long-term investment providing a fillip to overall investment and in turn growth.

In FY20, financial services recorded a fall in the share of fund-raising via the corporate bond market channel from 78.4 per cent in FY19 to 70.6 per cent in FY20. The non-financial segment recorded a notable increase from 18.1 per cent in FY19 to 28.2 per cent in FY20.

There has been a broad-based increase in the share across the different sub-segments. The share of manufacturing has more than doubled from two per cent in FY19 to 5.5 per cent in FY20 largely on account of higher fund-raising in the chemical sector. The share of electricity also doubled from 2.1 per cent in FY19 to 4.2 per cent in FY20.