The liquidity crisis has top Indian companies going back to the good old ways of raising fund?taking fixed deposits and pledging shares. Apparently, companies have realised that those who garner funds at the best rates are the ones with the best chance to survive.
With the equity market virtually shut for new issues and banks reluctant to lend to the corporate sector, companies have little option but to turn to debt placement. The rush to explore other means has been so sharp that by the end of this financial year, corporate India will have doubled its debt placement from the year before.
According to data sourced from Prime Database, in 2007-08, companies raised Rs 1,77,000 crore through 1,433 debt issues. Preliminary estimates show a similar amount had already been raised in the current fiscal to fund capacity expansion plans and even manage working capital.
Tata Motors, the country?s second largest vehicle maker, has announced a fixed deposit plan that offers 10% interest for one-year deposits, with senior citizens getting 0.5% more. The company?s board has approved raising up to Rs 1,931.5 crore from the public through this route.
Already around 150 issuances have been announced in this fiscal and more companies are expected to sign on. Company fixed deposits went out of favour in the early 1990s as the Indian stock markets boomed.
?The cost of funds for any decent company would be around 14 to 18% now while fixed deposits can be raised for around 12.5%. So they are attractive,? says Mandar Gupte, CFO with a multinational company.
For investors, too, the fixed deposit route makes sense as the returns are more than that what are available from banks, which offer at best around 10%. The reputation of the companies, of course, plays a big role. Manufacturing companies can raise up to 25% of their net worth while non-banking financial services companies can raise up to five times their net worth.
Taking a slightly different route, India?s largest private sector company, Reliance Industries Ltd, has recently placed 10-year bonds worth Rs 500 crore at 10.75% with mutual funds, say sources close to the deal. The company will also be issuing another tranche of bonds, albeit with a smaller tenure. Sources say that overall RIL has plans to mop up about Rs 12,000 crore through various bond issues.
ACC, the country?s largest cement manufacturer, has raised Rs 200 crore via a five-year bond issue. The instrument was non-convertible debentures to be used to finance the expansion plans of the company.
The coupon is set at 1.30% payable annually, a company spokesperson confirmed. The interesting aspect of the issue is ACC is cash-rich. It has Rs 1,000 crore as cash reserves. But as the spokesperson told FE, ?We are raising this amount taking into consideration the current economic situation and to handle liquidity situations?.
Others who are queuing up with bond issuances include Grasim, Hindalco, Aditya Birla Nuovo, Sterlite Industries, Apollo Tyres, Adlabs, JK Cement, and JSW Steel.
The other option is to raise funds through equity sale. Tata Teleservices Ltd, the country?s sixth largest telecom player, recently offloaded 26% stake to Japan?s NTT DoCoMo for $2.7 billion. The money would obviously help the company for the upcoming 3G spectrum auctions, apart from rolling out its GSM services.
R-Adag is planning to divest up to 26% stake in its flagship, Reliance Communications Ltd through a secondary market route. This company is in the process of rolling out its GSM services across the country.
A variation of this plan is to pledge some shares with banks or non-banking finance companies. Sobha Developers has apparently pledged around 24.4% of the total equity with Bank Sarasin and Credit Suisse, but the company did not confirm the same. Great Offshore is also another company that has resorted to this measure. Earlier, Omaxe had also pledged its shares with Indiabulls Financial Services to fund its land acquisition plans.
Companies that have had poor financial numbers are also pawning their assets or even selling them off. This, for airlines, includes aircraft while for real estate companies, land banks. Jet Airways has recently leased two of its A-330s to Gulf Air and three B-777s to Turkish Airlines to strengthen their cash reserves. The airline in a press statement stated that these aircraft were rendered surplus consequent to route re-structuring and cost saving. According to Sandeep Shenoy, strategist, Pioneer Intermediaries, ?Leasing aircraft will help the carrier generate revenues in the ensuing quarters. The airline has already posted losses of Rs 384.5 crore. It desperately needs to improve its financials?.
In the real estate sector, BSEL Infrastructure Realty has sold some of its land bank. Dharmendra Raichuria, managing director, BSEL Infrastructure Realty Ltd, told , ?Due to the global economic turmoil and the financial crisis, we have no other option left but to sell our two land parcels each in Nagpur and Goa to raise Rs 200 crore. These funds will be allocated to our upcoming residential projects in the international market, including Malaysia where we want to create a strong presence in the residential property market. In the future, we may look at similar such strategies in India.?
Delhi-based Unitech has also stated that it plans to raise some Rs 2,500 crore by monetising its assets. The company plans to sell its hotel projects. The company has total debts of around Rs 8,000 crore.