Public Bond Sales Slump in India as Stocks Gain Lures Buyers

Public Bond Sales Slump in India as Stocks Gain Lures Buyers

Bond sales by Indian companies to individuals have hit a five-year low and a recovery isn’t in sight as issuers prefer to tap cash-rich banks and retail investors flock to one of Asia’s best-performing stock markets.

Public debt offerings plunged 84 percent to 39 billion rupees ($602 million) in the eight months through November compared with the same period a year ago, data from the market regulator show. In contrast, companies have raised a record $11.6 billion from initial share sales this year, data compiled by Bloomberg show.

“A reduction in interest rates has made bank loans and private placements cheaper and a faster option to raise funds,” Ajay Saraf, executive director at ICICI Securities Ltd., said in an interview. Investors have been attracted by higher equity returns as demand for public bonds has cooled, he added.

Lenders flush with cash after last year’s ban on high-denomination notes have been eager buyers of debt amid generally lackluster credit demand. In addition, excess liquidity pushed bank deposit rates to multi-decade lows, prompting retail investors to plow money into equity mutual funds and initial public offerings.

Companies will increase their reliance on private placements and bank loans as interest rates are expected to remain stable after Moody’s Investors Service upgraded India’s rating, Saraf said. Businesses in Asia’s third-largest economy have raised a record 5.79 trillion rupees by issuing notes this year.

Retail bond offerings may revive if the market regulator shortens the issuance process, and exchanges streamline their processes to make it easier for investors to buy and sell debt, said Hemant Kanoria, chairman and managing director of Kolkata-based Srei Infrastructure Finance Ltd.

“Why choose a tedious and expensive process of public issuance of bonds when there’s ample liquidity with banks?” he said. “For now, the outlook for such debt sales is dim.”

The booming stock market has left companies with little incentive to hawk debt. Some of the largest firms, including Bharti Airtel Ltd. and Larsen & Toubro Ltd., have sold $1.3 billion of shares on a rights basis this year, data compiled by Bloomberg show.

“These days there’s lot of focus and appetite for equities, so companies are trying to max out their benefits by selling equity rather than debt,” said Ajay Manglunia, head of fixed income at Edelweiss Financial Services Ltd. in Mumbai.

The Mint, New Delhi, 28th November 2017