Firms hit bond mart for working capital

Tags: ALL, bonds, REC, Shriram, News

REC, ALL, Shriram latest to raise short-term funds

Firms hit bond mart for working capital
The bond market is still the saviour of many companies. The higher cost of bank credit is forcing companies to depend on the debt market to raise working capital.

Rural Electrification Corporation (REC) raised Rs 1,500 crore through a domestic bond issue this week. The five-year bond issue with a coupon rate of 9.61 per cent was fully subscribed by banks and mutual funds. Other companies that raised money include Ashok Leyland and Shriram group, which raised two-month money at 8.9 per cent.

According to a senior REC official, the money raised is over and above the tax-free bonds of Rs 3,500 crore the company raised in September. The funds raised will be used to meet working capital needs. The quota for tax-free bonds for 2013-14 is complete.

NS Venkatesh, treasury head of IDBI Bank, said, “The yields in the bond market are still high as inflation is yet to cool off. Companies are trying to raise money, but only the top-rated among them are able to mobilise funds. Status quo in the monetary policy was able to bring down the rates only by 10 to 15 basis points.”

Banks, mutual funds, insurance companies and pension funds are the investors in the market. Since banks are unable to expand credit for lack of demand and also because they are trying to control mounting debt problems, an investible surplus has arisen which is being invested in government bonds, mutual funds and corporate bonds.

Bank credit grew by a paltry 0.6 per cent in the fortnight ended December 13 from the preceding fortnight, according to RBI data. Deposits too are also growing at a similar pace but slightly faster than credit growth.

A dealer in the corporate bond market said, “Companies are coming in for short-term money of just two months at 8.9 per cent, which works out cheaper than bank credit. Even Ashok Leyland and Shriram group raised two-month money at 8.8 per cent.”

With the base rate of most banks at 10 per cent it is cheaper for the better-rated companies to raise money from the bond market. Banks are also raising short- term certificates of deposits from the market.

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