Joel Rebello

Mumbai: After ignoring the domestic corporate bond market since the turn of the century, manufacturing companies are now warming up to the corporate bond market.

The credit squeeze abroad, together with the restrictions on foreign borrowings, has forced companies to look at this option to raise funds.

Steel major Tata Steel was the latest Indian firm to take this route. It raised $480 million (Rs 2,000 crore) on Monday — the largest single-issue bond offering from a private corporate borrower.

Tata Power raised Rs 500 crore and Indian Hotels mopped up Rs 400 crore recently.

Corporate bond dealers are more excited about the future, as cement company Ultratech, aluminium major Hindalco and financial services company Reliance Capital plan to raise finances from the domestic market.

“In the last few years, companies only looked overseas for funds through routes like external commercial borrowings and convertible bonds. Now, since the RBI has introduced curbs on external commercial borrowings (ECBs) and investor appetite globally has taken a hit, Indian companies have been forced to look at the domestic market,” said Ashish Ghiya,managing director at corporate bond brokerage Derivium Capital.

Global risk appetite has taken a hit in the wake of the sub-prime crisis in the US. Investors are cautious, particularly about investing in companies from the developing economies, making borrowing more expensive for companies from countries like India.

Also, in August 2007, the RBI decreased the amount that companies can remit for capital expenditure in India through ECBs from $500 million to $20 million.

Indian companies raised about $30 billion in 2007-08, according to RBI data. Investors point out that the difference between the Indian and foreign interest rates have also come down significantly.

“Even a double AA rated paper of big companies from the Tata and Reliance groups have good demand here,” said Manish Dangi, fund manager with Birla Sun Life Mutual Fund. He expects bond issuances to continue to be robust throughout the year as the international market continues to real under the credit crunch onslaught.

However, not everybody is upbeat about the prospects of the corporate bond market.

RH Patil, chairman of the high level committee on the corporate bond market, points out that interest in the market is still restricted to a few players and, until the bond placements become public, the market will continue “to grapple in the dark.”

“Our (the committee’s) recommendation on changes in stamp duty for bonds has been recommended to an empowered group of secretaries. Also, primary market suggestions made to Sebi have not been taken up. Unless the government and regulators are serious the bond market won’t develop,” Patil said.

Source : DNA