Non-convertible debentures mobilisation jumps 16 times on growing investor appetite

Chennai: With investors lapping up offers with gusto, funds mobilised by companies through non-convertible debentures (NCDs) has jumped by nearly 16 times in the first half of 2016-17. Firms have raised a record 23,901.4 crore through NCDs between April and September, data with markets regulator Sebi showed. This is the highest ever in the first six months of a financial year since Sebi started publishing data on public issue of NCDs from 2008-09.

The NCD offers were subscribed nearly 2.75 times on an average in the first half of 2016-17. NCDs, which are primarily loan-linked bonds, have turned into an attractive investment proposition due to the high returns they offer. NCDs that closed in September are offering returns of 8.55%-9.25% per year. They provide interest on an annual basis. In contrast, most banks are giving interest rate of around 7.25% for one-year fixed deposits (FDs).

"Bank FDs have become unattractive in a falling interest rate regime. NCDs, however, offer higher returns. This is driving investor appetite in NCDs," says Rupesh Nagda, director, Family First Capital Advisors, a wealth advisory firm. "Interest rates are going down by the day. NCDs have become popular as they give better returns than bank FDs," says Suresh Sadagopan, founder, Ladder7 Financial Advisories.

Dewan Housing Finance Corporation (DHFL) and Kosamattam Finance took the NCD route twice to raise capital. The NCD issues of DHFL, Mahindra and Mahindra Financial Services and Indiabulls Housing Finance saw good interest from investors. DHFL's maiden NCD issue, which opened in August, was subscribed nearly 19 times on the first day itself.

The second issue with a base size of 2,000 crore, which also opened in August, and was worth up to 10,000 crore was subscribed more than six times on the first day itself. This prompted DHFL to close the NCD issue on August 30, the second day of the offer, itself. The issue was scheduled to close on September 12.

Indiabulls Housing's NCD, which opened on September 15, was subscribed 117 times on the Bombay Stock Exchange within the first hour of the bidding process. The NCD, with a base size of 3,500 crore, raised 7,000 crore.

In terms of number, funds were raised through 10 issuances in the first half of 2016-17 compared to just four in the same period the previous year. Companies had raked in 33,811.9 crore from 20 issuances during 2015-16, while in 2014-15, they had raised 9,713.4 crore through 25 issuances.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.