Indian companies have mopped up over Rs 7,800 crore through retail issuance of non-convertible debentures (NCDs) in the ongoing fiscal, thus garnering nearly twice the amount originally targeted through these issues.
A total of nine non-banking finance companies, including India Infrastructure Finance Company and Rural Electrification Corp, have tapped the NCD route so far in the current fiscal with a target to mop up Rs 4,875 crore (Rs 48.75 billion) collectively.
Indicating strong investor demand for the retail debt market products, these nine issues have managed to garner Rs 7,818 crore (Rs 78.18 billion) through NCD route, as per the data compiled by market regulator Sebi.
Barring Power Finance Corp, all the other eight firms managed to raise more than their targeted amounts.
In the last fiscal (2011-12), companies have raised Rs 35,611 crore (Rs 356.11 billion), as against the target size of Rs 31,100 crore (Rs 311 billion).
Non-Convertible Debentures are loan-linked bonds issued by a company that cannot be converted into stock and usually offer higher interest rate than convertible debentures.
Most of the funds were raised to support financing activities and to meet working capital requirements.
Experts say that volatile conditions in the equity markets have led to companies tap NCD route to raise funds. Besides, investors are attracted to good returns being offered in these NCD issues.
"Debt instruments, especially NCDs, have emerged as a preferred route for retail investors to park their funds as these were offering higher returns compared to what most of the banks providing on fixed deposits," CNI Research Head Kishor Ostwal said.
"While banks offer a return of 9-9.5 per cent for a 5-year period, NCDs of a similar tenure can offer between 10 per cent and 12 per cent," he added.
Individually, India Infrastructure Finance Company raked in a total of Rs 2,884 crore (Rs 28.84 billion) against the base size of Rs 1,500 crore (Rs 15 billion), REC garnered Rs 2,017 crore (Rs 20.17 billion) against the target of Rs 1,000 crore (Rs 10 billion).
Shriram Transport Finance Company [ Get Quote ] Ltd and India Infoline [ Get Quote ] Finance Ltd raised Rs 600 crore (Rs 6 billion) and 500 crore (Rs 5 billion) respectively - twice than their base sizes.
Moreover, Shriram City Union finance [ Get Quote ] Ltd raked in Rs 433 crore (Rs 4.33 billion) against a target of Rs 250 crore (Rs 2.5 billion), Religare Finvest Ltd garnered Rs 332 crore (Rs 3.32 billion) against base size of Rs 250 crore (Rs 2.5 billion), Muthoot Finance Ltd raised Rs 274 crore (Rs 2.74 billion) against Rs 250 crore (Rs 2.5 billion) and Srei Infrastructure Finance Ltd [ Get Quote ] mopped up Rs 77 crore (Rs 770 million) against Rs 75 crore (Rs 750 million).
On the other hand, Power Finance Corp mopped up Rs 700 crore (Rs 7 billion), much below than the targeted amount of Rs 1,000 crore (Rs 10 billion).
Investors were being offered interest rate between 7.3 per cent and 12.6 per cent per annum through these NCDs. Most of the NCD tenures range between 10 years and 15 years.
Market analysts said investment in NCDs should not exceed 14-15 per cent of an investor's debt portfolio.