Fund-raising through NCD issues dry up for NBFCs
NBFCs are failing to book the entire green-shoe option available while raising funds through debentures.
Mumbai: Risk aversion among investors for NBFC paper has led to a tepid market for funds raised from non-convertible debentures this year. Atleast 19 companies raised Rs. 11,100 crore in the five months of the current financial year, data compiled by Prime Database shows. This is in sharp contrast to the fund raising last year when 20 companies had raised a whopping Rs. 30,701 crore by issuing NCDs.
“It has become challenging for NBFCs to mobilise capital from the public,” said a debt fund manager requesting anonymity. “An entity like Shriram, back in 2014, used to mop up Rs 2,000 crore and close the issue within two days; today they are hardly raising Rs 500 crore.”
High-rated paper issued by non-bank lenders have seen spreads rise to multi-year highs since the collapse of infrastructure financier IL&FS in September last year. While the spreads on a AAA rated NBFC paper averaged at 60 bps last year before IL&FS went bust, it has risen to 1.52 bps in August this year, a rise of at least 90 bps.
Risk aversion against non-bank lenders continued with most companies failing to book the entire green-shoe option available while raising funds through debentures, data showed
“Even at a time when other asset classes such as gold, property and equity are not doing well, NBFCs are not finding investor interest. That clearly explains a fear psychosis is at play, which is not allowing investors to take advantage of this opportunity,” said Mahendra Jajoo, head of fixed income, Mirae Asset AMC. “Only the top 10 are able to garner money in good quantity and rates. For the rest, there is scepticism and risk aversion,” Jajoo said.
Following the IL&FS default in August last year, non-bank lenders are attempting to diversify their borrowing portfolio to stabilise asset-liability mismatches.
Fund-raising avenues for NBFCs are shrinking due to negative sentiment of investors and lenders. Bank credit to the sector contracted Rs 6,000 crore in the first quarter of the current financial year, according to RBI data. Corporate bond issuances also fell by nearly 2% between FY18 and FY19.
“It is mainly due to risk aversion. Most of public sector banks are choosing to park their money in safer avenues and not actively participating in any kind of risks,” said Lalitabh Srivastava, deputy vice president at Sharekhan.