While high-rated borrowers would continue to scout for the cheapest sources of funding, it will ultimately be a function of the capital market’s competitiveness with banks – both in terms of interest and tenure.
An analysis made by the rating agency regarding the debt capital structure of the top 1,700 non-financial debt-heavy corporates shows that borrowings by corporates from the bond market have gained significant traction over the past decade, with the proportion increasing to 34% from 16% of the total debt funds raised in the past decade.
“In the bond market, there are enhanced opportunities for takeout financing for completed projects and also bonds provide a longer tenure to minimise the impact of cash-flow mismatches in the initial stages of ramping up,” the rating agency said in a research note.
In 2019, Sebi passed a guideline wherein listed large corporates with borrowings of ₹100 crore and above and credit ratings of AA and above would have to garner 25% or more of their incremental borrowings through bonds.
According to the rating agency, large corporates have a mixed record in meeting the regulatory guideline of borrowing a minimum of 25% of the annual incremental borrowings from capital markets.
Among the corporates meeting the criterion, 22 entities have met the borrowing requirements in AAA and 69 entities in the AA categories. The number of companies falling short is 82 in the AAA category and 147 in the AA category in FY22-FY24.To comply with the regulation, these entities will be required to raise ₹6,900 crore by FY24, with companies in sectors such as crude oil, power, iron and steel, and textiles needing to raise the bulk of this amount.