NBFCs raise record amount via commercial papers to fund IPOs

By Manish M Suvarna

At a time when a large number of companies have been raising capital via initial public offerings (IPOs), non-banking finance companies (NBFCs) have raised short-term debt via commercial papers (CPs) to finance high net worth individuals.

“During the IPO flurry, a lot of NBFCs have aggressively borrowed funds from the market to accommodate the request of HNIs. These equity investors were interested in the IPOs because the companies who had offered shares for sale have strong financials, leading to most of the issues getting oversubscribed and listed at a premium,” said Ajay Manglunia, managing director and head institutional fixed income at JM Financial.

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According to the data compiled by market participants, NBFCs have raised close to Rs 2.17 lakh crore since June, almost 44.51% of total CP issuances. A major portion of this amount has been raised by Bajaj Finance, Aditya Birla Finance, Infina Finance, JM Financial Products and Tata Capital Financial Services. ECL Finance, Kotak Mahindra Investment, Edelweiss Investment, IIFL Finance were the other issuers.

Since June, the BSE and the National Stock Exchange have been flooded with IPOs. Most of these have been subscribed fully and listed at a high premium due to strong demand from investors. Funds raised through CPs are ultra-short-term debt instruments having maturity of up to 8 days. Usually, these instruments are issued by NBFCs to lend the proceeds to wealthy clients for investing in IPOs. These papers were issued 80-120 basis points higher than the rates on papers issued by NBFCs maturing in three months. Currently, rates on three-month CPs issued by NBFCs are at 3.70-3.90%.

But since June, the rates on these papers were 70-80 basis points higher than 3-month papers issued by NBFCs. The rates was lower than the usual spread of 80-120 basis points due to huge surplus liquidity in the banking system and firm demand from mutual funds. However, some lower-rated companies got a higher rate.

“The liquidity in the system was surplus and every fund house wanted some extra basis points. Mutual funds were not happy with all the NBFCs, they were very skeptic on choosing companies,” a dealer with NBFCs said.

Market participants expect more funds to be raised in coming days through CPs as some big public issues are in the pipeline.