Privately-placed debt funds gaining traction

Privately-placed debt funds are gaining in popularity. In the first three months of the current financial year, India Inc. mobilised Rs 23,252 crore through the private placements of bonds, a 23 per cent increase over the Rs 18,851 crore it had raised in the corresponding period last year, according to data compiled by Prime Database. Interestingly, though the amount raised was large, this trend wasn’t very widespread; only 36 companies and institutions accounted for the entire mobilisation.

Of this, the private sector accounted for about 20 per cent; it raised Rs 4,598 crore during the April-June quarter, compared to Rs 2,483 crore in the same period last year. The balance Rs 18,639 crore was mopped up by central public sector financial institutions and banks, a 15 per cent increase over the previous corresponding figure of Rs 16,241 crore.

Incidentally, the share of money raised by the latter fell from 86 per cent in the first quarter of 2006-07 to 80 per cent during the period under review. Only deals with tenors of more than one year were considered for the report.

Says Prithvi Haldea, Managing Director, Prime Database: “Statelevel undertakings, which raised Rs 50 crore through this route last year, did not mobilise any money this year, while state-level financial institutions recorded an 81 per cent fall in mobilisations to Rs 15 crore.”

Among companies and institutions, NABARD raised the highest amount through the private placement route (Rs 5,370 crore), followed by HDFC (Rs 2,600 crore), SBI (Rs 2,523 crore), PFC (Rs 1,320 crore), IRFC (Rs 1,190 crore), Citi Financial (Rs 1,095 crore) and PGCIL (Rs 1,065 crore). The financial services sector continued to dominate, raising Rs 21,962 crore or 95 per cent of the total amount, compared to around 90 per cent in the first quarter of the previous financial year. The power sector accounted for the balance 5 per cent (and the PowerGrid Corporation of India alone accounted for the entire amount)

Of late, market regulator Securities and Exchange Board of India has been calling for compulsory listing of privately-placed debt issues, which are defined as corporate bonds issued to no more than 50 investors, in order to bring in more transparency and facilitate trading in such instruments.

Privately-placed debt issues are at present not subject to any disclosure norms. This naturally makes it easier for the issuer as it does not have to adhere to any compliance issues. However, starting January this year, SEBI has made it mandatory for issuers to report even privately-placed debt issues to stock exchanges.

A debt issue becomes public once the number of investors crosses 50; investors can, then, trade in these securites. Issuers also have to comply with strict disclosure and other guidelines governing such issues.