Corporates are knocking on the doors of the cash-rich Life Insurance Corporation of India to meet their funding requirements as the corporate debenture market has dried up and banks are averse to long-term exposure on fears of asset-liability mismatch.
LIC subscribed to Konkan Railway Corporation's 12-year bond issue of Rs 200 crore (Rs 2 billion) at an annualised interest rate of 6.2 per cent.
This private placement, which did not involve any merchant banker, will partly help KRC redeem Rs 883 crore (Rs 8.83 billion) of high-coupon bonds carrying an average coupon rate of 10.5 per cent.
This follows KRC exercising the put and call option on its earlier debentures in order to bring down the interest burden.
KRC is one of the many proposals LIC has received since the Securities & Exchange Board of India has made in mandatory on corporates to list their bonds to protect investors.
This brought many corporate issuances from IDFC, KRC, Nabard, Exim Bank, Reliance, Hindalco among others to a halt.
KRC was to come out with a Rs 350-crore (Rs 3.5 billion) corporate bond issue last month, hoping to raise the funds at a coupon rate of 6.1 per cent.
Corporates have borrowed over Rs 3,800 crore (Rs 38 billion) from LIC in the past seven months, reflecting a growth of over 230 per cent over the corresponding period last year.
Of late, there has been an increase in the number of proposals. "There are many more proposals pending with us," said LIC chairman S B Mathur in response to whether there have been a greater number of corporates approaching LIC following Sebi's requirement for listing debentures.
"Corporates in need of funding are also likely to come with proposals for term loans," he added.
Banks too have seen corporates prefer the credit route instead of the earlier investment route.
"Credit figures have increased in the last six weeks. As investment opportunities are limited for banks, corporates are almost getting loans at similar rates of interest as they would have had they been able to go to the market," said a senior private sector banker.
Corporate are also increasingly turning to commercial paper to meet their short-term requirements as they have started the ball rolling for listing of their bonds.
Brokers said that daily volumes in the primary market have risen five-fold to about Rs 50-60 crore (Rs 500-Rs 600 million), from the earlier Rs 10-15 crore (Rs 100-Rs150 million).
Many non-banking finance companies are raising short-term capital. Indian Hotels raised Rs 50 crore (Rs 500 million) on Friday for 90 days at 4.69 per cent. It is understood the CP was placed with ICICI Bank.
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