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Corporate India has been leveraging the cost-effective private placement route to secure funds, surpassing the previous record with three weeks to spare amid heightened credit demand and favourable funding costs. This has led to the total value of corporate debt, through private placement of corporate bonds, reaching a new record of Rs 8.97 trillion in 2023, according to a report by The Economic Times (ET). The previous record was set in 2020 at Rs 7.95 trillion.
Within this, public sector banks and financial institutes account for Rs 3.15 trillion, private sector non-banking financial companies (NBFCs) raised Rs 2.21 trillion, and corporate entities secured Rs 2.06 trillion. Private sector banks and public sector companies also contributed significantly, securing Rs 1.15 trillion and Rs 35,743 crore, respectively.
According to ET, fund managers believe private placement has become the preferred and cost-efficient method for swift capital raising compared to alternatives such as IPOs, QIPs, or traditional bank loans. Factors such as expensive overseas borrowing, a surge in credit demand, and higher bank loan rates may also contribute to the popularity of this form of fundraising. Advantages include price discovery through bidding, bidder confidentiality, and lower funding costs.
Private placements also offer a strategic avenue for corporates, allowing access to institutional investors and high-net-worth individuals with relatively fewer disclosures and compliance requirements. The benefit extends to investors, allowing them to invest in debt from robust corporate entities.
The driving force behind this private placement surge is reportedly driven by India's robust economic performance, with a 7.6 per cent expansion in the September quarter, surpassing expectations. Manufacturing, representing nearly 19 per cent of the economy, experienced a nine-quarter high growth of 13.9 per cent, contributing to increased economic activities.
