The commencement of base rate regime since July 1 has seen corporates lining up to raise huge amounts through commercial paper (CP) and non-convertible debenture (NCD) instruments. Earlier, these companies used to raise cheaper funds at sub-prime lending rates (PLRs).
According to rating agencies, while some blue chip companies companies have already lined up for ratings for their fund raising exercises via CP and NCD, others are seeking re-ratings as they intend to raise much higher amounts to meet their short-term fund requirements.
?Typically, the market for short-term debt instruments, including CP and NCD, grows at 20-25% CAGR, in proportion to credit growth,? says Maneesh Dangi, head, fixed income investment, Birla Sun Life Mutual Fund. He adds, ?Because of the base rate regime, it is expected to grow at 40% in a year?s time. The market will expand widely with lots of new issuances.?
According to Raman Uberoi, senior director, Crisil Ratings, corporates categorised under P1 and P1+ grades are moving towards raising short-term resources through CPs and NCDs following implementation of base rate regime. ?These corporates are approaching us to rate their CP and NCD issues. Typically, such issuances are expected to go up with much more competitiveness.?
Agress Icra managing director Naresh Thakkar: ?We are getting good business by rating CP and NCD issues of corporates. Typically, top-rated companies will initially issue CPs. We have already received a number of queries from various companies.?
Recently, Godrej & Boyce enhanced its CP programme to Rs 150 crore from Rs 137 crore, and Crisil had to rate the enhanced amount. Similarly, Asian PPG Industries (a joint venture between Asian Paints and US-based PPG industries) on Friday sought re-rating for its enhanced amount (from Rs 12 crore to Rs 40 crore) raised though CP. Icra has also assigned an A1 rating to the Rs 50-crore short-term debt programme of PMT Machines Ltd.
Recently, Crisil rated fresh NCD issues of Rs 350 crore by Tata Sons and Rs 600 crore by Tata Power. Fitch Ratings rated an NCD of Ballarpur Industries worth Rs 250 crore with AA- grade and stable outlook. Similarly, Crisil again assigned AA (so) rating ?with a stable? outlook to Hero Motor?s Rs 40 crore NCD issue.
Market players say tight liquidity has created pressure on short-term rates; three-month CP/CD rates are up 150-200 bps, to 6%-plus levels, and yield curve has started flattening. ?We believe repo rate hike and current tight liquidity scenario (to prevail for few more weeks) will aggravate pressure on wholesale rates,?? said a public sector banker. To promote transparency in the secondary market for short-term instruments, RBI has already proposed to introduce a reporting platform for deals in commercial paper and deposit certificates. In June, RBI allowed banks to invest in bonds with less than one-year tenure in its final norms on issuance of NCDs. It, however, said the NCDs should not be issued for maturities of less than 90 days from the date of issue and the put/call options attached to the NCDs, if any, should not fall within the period of 90 days from the date of issue.
