By Manish M Suvarna
Issuances of commercial papers (CPs) rose sharply by 47.8% year-on-year in April-August due to heavy fundraising by non-banking finance companies (NBFC) for funding requirements, especially to finance high net worth individuals for initial public offerings (IPOs).
“The increase in CP issuance reflects NBFCs returning to normal funding routes. Funding requirements were largely met through NCD issuances on account of LTRO (Long-Term Repo Operations) or TLTRO (Targeted Long-Term Repo Operations) in the previous year,” said Anand Nevatia Fund Manager Trust Mutual Funds.
CPs worth Rs 8.77 lakh crore has been issued between April and August, which was sharply up compared to the corresponding period in a previous financial year. Of the total fundraising in April-August of the financial year 2021-22, almost 50% or Rs 4.33 lakh crore has been raised by NBFCs, while the remaining were raised by manufacturing and housing finance companies, according to data compiled from the NSDL website showed.
Among NBFCs, Bajaj Finance, National Bank for Agriculture and Rural Development (Nabard), Infina Finance, Aditya Birla Finance and L&T Finance are the largest issuers. These companies have raised around Rs 2.23 lakh crore, which is 25% of the total funds raised by the companies in April-August FY22.
Market participants said that most non-banking finance companies sold ultra-short-term debt papers in July and August to fund high net worth individuals, who were eagerly subscribing to the IPOs by the company. CarTrade Tech, Zomato, Aashka Hospitals and Windlas Biotech, among others, were some IPOs that hit the market recently.
Since mid-June, several companies have rushed to raise capital from the primary market. Most of the initial public offers (IPOs) were fully subscribed and listed at a premium on the exchanges, following firm demand from investors. To fund their clients for subscribing to these IPOs, NBFCs raised nearly Rs 2 lakh crore through IPO-CP.
A dealer with a brokerage firm said that the rise in issuances has kept rates on these papers volatile, but in July and August, it settled to 5-10 basis points lower. Currently, the yields on commercial papers issued by NBFCs are between 3.50% and 3.65%, while those on papers issued by manufacturing companies were hovering in the range of 3.35%-3.50%.
The primary reason for the moderation in rates was attributed to the huge surplus liquidity in the banking system and firm demand from mutual funds.
The liquidity in the banking system is estimated to be in surplus of around Rs 8 lakh crore, which prompted yields on these papers to come down. Additionally, fund houses witnessed good inflows into shorter end funds and money received from maturity of their investments in CPs has forced them to reinvest these funds into the short-term papers.
“Issuers have been able to raise money at the short end at attractive rates as liquidity has been averaging Rs 8 lakh crore for over a month now,” Nevatia added.