Over 75% of NBFC NCDs went undersubscribed during Sept-June

Fund-raising avenues for NBFCs are shrinking due to negative sentiment of investors and lenders. By Himanshi Lohchab

MUMBAI: A crisis of confidence has gripped investors putting money in debt papers of Non-Bank Finance Companies (NBFCs). More than three-fourth of the total 28 Non-Convertible Debenture (NCD) issues by NBFCs in the last 10 months were under-subscribed, despite offering higher yields.

Between September 2018 and June 2019, only 6 out of 28 NCD public issues by non-bank lenders were fully subscribed. During the period, four of the biggest NBFCs papers- Indiabulls Consumer Finance, JM Financial Credit Solutions, Srei Infrastructure Finance and Manappuram Finance, were under-subscribed by 73-80%, according to data compiled by PRIME Database.

“It has become challenging for NBFCs to mobilise capital from the public," said a debt fund manager requesting anonymity. "An entity like Shriram, back in 2014, used to mop up Rs 2000 crore and close the issue within two days, today they are hardly raising Rs 500 crore."

Highlights
Share of NBFCs in corporate bond issues- 62%Fell by nearly 2% between FY18 and FY19Only 6 out of 28 NCDs fully subscribed between Sept 2018 and June 2019
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Post the IL&FS defaults in August last year, non-bank lenders are attempting to diversify their borrowing portfolio to stabilise their asset-liability mismatches. The fiscal year gone by witnessed the highest number of public issues of Non-Convertible Debentures(NCDs) made by NBFCs in the past five years.

“Even at a time when other asset classes such as gold, property and equity are not doing well, NBFCs are not finding investor interest. That clearly explains a fear psychosis is at play which is not allowing the investors to take advantage of this opportunity,” said Mahendra Jajoo, head of fixed income, Mirae Asset AMC. “Only the top 10 are able to garner money in good quantity and rates. For the rest of the NBFCs there is scepticism and risk aversion,” said Jajoo.

Fund-raising avenues for NBFCs are shrinking due to negative sentiment of investors and lenders. Bank credit to the sector contracted Rs 6000 crore in the first quarter of the current financial year, according to RBI data. Corporate bond issuances also fell by nearly 2% between FY18 and FY19.

“It is mainly due to risk aversion. Most of Public Sector Banks are choosing to park their money in safer avenues and not actively participating in any kind of risks,” said Lalitabh Srivastava, Deputy Vice President at Sharekhan.