India Inc. raised more than Rs 2.78 lakh crore from capital markets in the quarter ended June as companies strengthen balance sheets as Asia's third-largest economy is expected to contract the first time in more than four decades because of the pandemic.
About 76% of the funds raised came through private debt placement, according to data shared by Prime Database. The rest, or about Rs 67,000 crore, was equity, mostly contributed by Reliance Industries Ltd.'s rights issue.
Other modes of raising capital include preferential allotment, non-convertible debentures, qualified institutional placement, commercial paper, foreign currency convertible bonds and external commercial borrowings.
The fundraising spree comes as the regulator eased pricing guidelines for preferential allotment and eased capital raising via other modes. Companies used the opportunity to raise cash to tide over the tough period, taking benefit of record liquidity infused by the central bank through rate cuts and other measures to cushion the economy as well as buoyant stock markets.
Demand has dropped and no one really knows how and when this pandemic will end and whether there would be a round two of lockdowns or not, Chirag Negandhi, joint managing director and co-chief executive officer at Axis Capital, told BloombergQuint. Merely cost-cutting wouldn't have worked to cover the overall fixed costs of many businesses, especially the ones which lack the resilience, he said. “Hence, managements haven't been averse to raising capital below their peak prices as these times call for survival of the fittest.”
Even veteran banker Uday Kotak, in his inaugural address as the CII president, asked India Inc. to raise funds to de-leverage without fussing over nickels and dimes.
Reliance's Fundraising Blitz
Reliance's rights issue contributed nearly 20% of the of the entire capital raised in the first 90 days of the 2021 fiscal. This does not include the Rs 1.5 lakh crore the company raised by selling stakes in unlisted subsidiary Jio Platforms Ltd., the holding unit for telecom and digital assets, to a clutch of investors including Facebook Inc., Google, Silver Lake, Vista Equity Partners, General Atlantic and KKR.
Financial Services
Nearly half of the funds raised from the capital markets were by financial services companies, including banks. They raised close to Rs 1.20 lakh crore in the April-June quarter to shore up capital as well as onward lend.
Fundraising continued in July and August as Yes Bank Ltd. and Axis Bank Ltd., raised close to Rs 15,000 crore each, while ICICI Bank Ltd. and HDFC Ltd. are also expected to raise funds.
Post moratorium, there might be higher NPAs in the banking space and the current market environment is good for banks to raise capital, Vikas Khemani, founder at Carnelian Capital Advisors, said.
According to UR Bhat, managing director at Dalton Capital Advisors, in case Covid-19 gets prolonged, banks' assets might come under stress. They are trying to ensure that there's enough capital to negotiate that, he said.
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