Mumbai: Indian firms raised the lowest amount via both onshore and offshore debt markets in six years in 2015, as domestic capital expenditure plans remained on hold and the turmoil in global markets dragged down foreign currency borrowings.

Data from Dealogic, a financial data provider, show that an aggregate of $37.5 billion was raised through the debt capital markets in 2015—a drop of 28% over last year and the lowest since 2009 when firms raised $29.1 billion.

Patchy demand across the economy caused private firms to be wary of spending big on projects. A subset of large firms is also continuing to struggle with a high level of debt on balance sheet with stalled and delayed projects adding to the pressure, slowing down new investment projects; the announcement of such projects sank 74% during October-December, data released by the Centre for Monitoring Indian Economy (CMIE) this week showed.

Given the propensity to spend less, corporates cut borrowings, particularly foreign. “There is not much capital expenditure happening domestically and so companies don’t require funds. Plans are not fructifying on revenue expectations which automatically translates to lower fund raising," said Ashish Vaidya, head of trading and asset liability management at DBS India.

Data showed that only $8.9 billion was raised from the offshore bond market via 34 deals in 2015 compared with $18.8 billion in 2014—a far cry from the record $35 billion raised in 2013, the highest ever raised by Indian entities overseas.

The build-up towards an interest rate hike from the US Federal Reserve that was announced in December, and data indicating a worsening Chinese economic slowdown also led to a cautious sentiment towards emerging market debt. This, along with an almost 50 basis points fall in domestic bond yields deterred companies from borrowing in foreign currency. One basis point is one-hundredth of a percentage point.

“Most of the borrowings by companies have been to refinance old loans and not for new capex. To that extent, companies would want to borrow cheaper to save on their cost of borrowing," said a senior bond arranger, asking not to be identified.

Out of the $8.9 billion raised, 60% was by non-financial companies and the rest $2.3 billion was from financial institutions, Dealogic’s review said.

Domestic fund raising fared slightly better with total issuance volume falling by 9% from a year ago to 1.82 trillion in 2015, according to the review. The number of deals added up to 321, down from 406 in 2014. Issuances by public financial institutions, the most regular borrowers from the domestic bond market, fell the most and declined by 30% from a year ago. Non-financial companies raised 21% less than in 2014.

The Reserve Bank of India’s cumulative 125 bps cut in policy rates helped bring down bond yields across tenors by as much as 50 bps by October. But yields rose again during October-December by 10 bps and issuances dropped during the time. The yield on the AAA-rated 10-year corporate bond had fallen by 20 bps during January-October. Yield on short-term two and three-year bonds had dropped by as much as 50 bps.

The fall in aggregate fund raising through debt capital markets is in keeping with the slowdown in bank loan growth. Non-food loan disbursals of Indian banks grew by 11% as of 11 December, with a large part of this growth coming from the retail segment. Loan disbursals to industry grew at a slow 5% year-on-year as of November, RBI data showed. Also, more than 60% of the debt market borrowings were by financial institutions for on-lending purposes. Each of these facts point to a growing caution on borrowings by domestic firms.

However, bond arrangers are hopeful that domestic issuances may rise in 2016 as borrowing through bonds still works out cheaper for firms. The AAA-rated 10-yaer bond yield is around 8.40% as of Wednesday while the lowest base rate across domestic banks is around 9.30%. A Bloomberg survey on Wednesday showed that bond arrangers expect issuances to total 4 trillion in 2016.

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