Corporate India has raised a record Rs3.72 lakh crore through issuance of commercial paper (CP) this fiscal as bank loans remain costlier and investor appetite strong for good quality debt.
The amount raised is up 27% compared with last fiscal.
Commercial papers are money market instruments issued by corporate houses to raise short-term funds with maturity period of less than one year.
Suyash Choudhary, head - fixed income at IDFC Mutual Fund, attributes the surge to the differential between the rates on CPs and bank loans. “With bond market funding cheaper than bank loan rates, corporates prefer to take money market route for short tenure funding. While bank loan rates have witnessed downward stickiness as the credit-to-deposit ratio is still high and banks are finding it difficult to get deposits, transmission of lower repo rates has been easier in money market.”
The rates on one-year CPs for non-NBFCs have come down from near 11% to 9.25% levels over the last one year (as per Bloomberg data). However, the base rates of banks have come off just a tad to 9.5-10% from 10-11%.
Considering banks keep the short-term lending rates above the base rate, comparatively lower CP rates offer an advantage to companies looking to borrow. Some high-quality papers have, in fact, been able to raise capital at rates as low as 8%.
As per Prime Database data, the number of issues has increased to 4,856 this fiscal from 4,465 in the last, suggesting popularity of this route among the existing big corporates and first-time issuers.
Indeed, a lot of new companies have taken credit ratings so as to tap this route, said Dwijendra Srivastava, head - fixed income at Sundaram Mutual Fund. “A lot of smaller and midcap companies are finding it better to issue CPs than take bank loans for 60-90 days to meet their working capital requirements. Also, with banks becoming conservative in lending due to rising non performing assets, the smaller companies are left with no choice,” he said.
But large oil and infrastructure companies, along with NBFCs, remain the major CP issuers. ONGC was the biggest CP issuer this fiscal and may have raised close to Rs85,000 crore through this route.
“Most of the companies were not getting subsidy disbursement from the government on time and had huge working capital requirements, which they met by CPs. They would have raised nearly Rs1.5 lakh crore this year,” said Ajay Manglunia, head of fixed income at Edelweiss Capital.
Not just primary issuances, even secondary-market trading in CPs has seen a yearly high in March with daily traded turnover at Rs4,563 crore from an average of Rs2,200 crore, according to FIMMDA.
Going forward, experts see CPs as the preferred route for corporates until the bank loan rates too come down drastically.