Over Rs. 40 billion raised as debenture flurry continues

Monday, 28 October 2013 01:09 - - {{hitsCtrl.values.hits}}

Budget 2013 incentive pays off with all-time high fund raising via listed debt instruments The country’s capital market has seen over Rs. 40 billion raised so far by corporate and financial institutions as preference for listed debentures continues. The year-to-date figure is an all-time record, surpassing the previous best of Rs. 15 billion achieved in 2010. The Daily FT in an exclusive coverage on 20 May hinted at the listed debt market heading for record year after the Rs. 10 billion mark was surpassed. Several more listed debenture issues are in the pipeline, with three firms have already announced plans to raise Rs. 3

billion. Analysts linked the resurgence in the listed debt market to the Government’s 2013 Budget exempting income tax on the interest income of corporate debt securities. This was to fast-track the development of the corporate debt market. Trading of debt securities however remains below its potential. In the first nine months of this year, the amount traded was Rs. 4.5 billion (involving instruments of 10 firms), though higher in comparison to Rs. 2.7 billion in 2011 and Rs. 75 million last year. Corporate debt market capitalisation last year was Rs. 46.3 billion, up from Rs. 37.9 billion in 2011. Last year, listed debt market had nine listings by two banking institutions raising Rs. 12.5 billion. These debentures with maturity period of five years carried both fixed and floating interest rates. In addition, last year three debentures were issued in the market by way of introduction. First Capital Equities in a research analysis recently noted that notwithstanding its expectation of a further decline in interest rates, companies appear to continue to raise cash via debenture issuances. “While the efficacy of corporate borrowing via debentures may depend on how these funds are indeed utilised; i.e., whether to fund capex (or retirement of debt, etc.), we believe that considering the relatively high interest rates that have been offered, issuing companies may need to be vigilant of overly excessive debt levels on their balance sheets and consequently pressure on margins as the majority of these debentures appear to have been offered at interest rates well above that of benchmark rates,” First Capital Equities said. Noting the impact of debenture issues on the performance of the stock market should not be overly exaggerated, First Capital believes however that the current movement of the ASPI could be partially attributable to some flight of capital from the stock market to the debt market considering the attractiveness of recent debenture issues for investors. “Notwithstanding the high debenture yields on offer however, we believe that quality stocks listed on the CSE may provide a healthy alternative to investors to generate double digit returns over the medium to longer term while providing an attractive investment diversification opportunity,” First Capital Equities added.