Privately placed debt issuance, ECBs surge
on lower
cost of funds
Privately placed debt issuance, ECBs surge on lower cost of funds
Updated - September 28, 2024 at 11:04 AM.
Debt issuances with good ratings have gained ground with corporates as it
allows them to borrow at moderate rates
By Janaki Krishnan
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Bag of fund and a hourglass on a laptop | Photo Credit: William_Potter
While equity fund raising has been grabbing the headlines, corporates have
raised more funds through private debt placements and external commercial
borrowings, both of which have surged over the last three years.
Funds raised through privately placed debt rose to ₹9.8 lakh crore in 2023
from over ₹6.52 lakh crore in 2021; it stands at ₹7.7 lakh crore so far in
2024, data provided by Prime Database reveals.
Similarly, over ₹3.4 lakh crore was raised through external commercial
borrowings in 2023, the figure stands at ₹2.3 lakh crore so far in 2024.
While public equity issuances and qualified institutional placements are
popular with corporates, debt issuances have gained pace, especially with good
ratings, that allow them to borrow at moderate rates. The higher cost of bank
credit has also turned many companies to privately placed debt, which is
snapped up by mutual funds and insurance• Страхование companies. The higher risk• Страхование » Риск weightage
for banks when lending to NBFCs and on unsecured loans has resulted in
non-banks turning to privately placed debt. The BFSI segment accounts for the
largest issuances.
The Indian bond market has also become cheaper on many counts, especially for
rated issuers with good cash flows.
“This is evident in the narrowing interest rate differential between the US
10-year Treasury yield and the Indian 10-year government bond yield, which has
dropped from the historical 3.5–4 per cent range to below 2–2.5 per cent,”
said Suresh Dakar, founder and director, Bondbazaar.
In the case of overseas borrowings, more companies are opting for external
commercial borrowings (ECBs), compared to plain bonds that used to be popular
earlier. A major reason for this is that “there is no withholding tax on
interest payments for borrowings made through ECBs via Gift City,” said Dakar.
“This makes it attractive for companies to raise funds in this manner. In
contrast, borrowing through bonds attracts withholding tax on interest
payments,” he added.
Bond issuances overseas dropped to ₹31,218 crore in 2023, from ₹1.1 lakh crore
in 2021, though there has been a slight uptick to ₹45,000 crore in 2024 so
far, due largely to bond issuances by a large corporate house.
Since 2018 plain bond issuances have aggregated ₹4.5 lakh crore, while ECBs
have totalled ₹17.6 lakh crore. In the same period, funds raised through debt
private placement have amounted to ₹52.3 lakh crore.
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Published on September 28, 2024