The public issue of non-convertible debentures (NCDs) fell more than 78% in FY15 compared with FY14, according to Sebi data till Wednesday.
The total public issue of NCDs in FY15 stood at R9,049.05 crore against R42,382.97 crore in FY14.
Bond market experts attribute this fall to the absence of tax-free bonds in FY15. In FY14, many state-owned PSUs had issued tax-free bonds, the overall limit on which stood at R50,000 crore. Companies raised close to R49,000 crore through these bonds, out of which a major portion was raised through public issue of NCDs.
“In FY14, out of the R49,000 crore issuance of tax-free bonds, around R37,000 crore was raised through public issue of NCDs. Since tax-free bonds were absent from the market this fiscal, public issue of NCDs witnessed a drop compared to the previous fiscal,” said Ajay Manglunia, senior vice-president-fixed income, Edelweiss Securities.
However, excluding tax-free bonds, there was almost a 50% growth in the public issuances of NCDs in FY15 compared to the previous fiscal year, bond arrangers say.
Indian Railway Finance Corporation (IRFC) — the finance arm of Indian Railways — raised R5,828.34 crore through public issue of bonds in FY14 out of which R4,083.12 crore was raised in a single issue, Sebi data show.
Another big public issue in FY14 was done by state-owned Rural Electrification Corporation (REC) which raised R4,500 crore while Power Finance Corporation (PFC) issued bonds worth R3,875.90 crore. Both these issues were done through tax-free bonds.
However, these major entities remained absent in the list of public issuers of NCDs in FY15. “We did not come to the market with a public issue this fiscal as tax-free bonds could not be issued. As and when the government notifies, we will immediately tap the bond market. Our borrowing target for FY16 is at R17,655 crore,” said a source in IRFC.
The largest public issue in FY15 was done by Shriram Transport and Finance Company at R1,974.85 crore, according to Sebi data till Wednesday. The most recent issue was by ECL Finance — the NBFC arm of Edelweiss Financial Services —which raised close to R800 crore.
Tax-free infrastructure bonds made a comeback in the 2015-16 Budget, albeit for projects in specified sectors such as roads, railways and irrigation.
The National Highways Authority of India (NHAI) and IRFC are some of the state-owned companies that are likely to benefit from this announcement. Bond market experts are anticipating that the issuance limit this time could be in the range of R50,000-70,000 crore.
“As soon as the government notification on tax-free bonds comes through, companies are likely to raise funds through these instruments, which is likely to bring down their cost of funds,” said NS Venkatesh, chief financial officer at IDBI Bank.