Mumbai: Fund mobilisation by companies from the local debt market in the fiscal first quarter fell 55% from a year earlier as public sector companies stayed away because of the approaching national elections and new rules in the Companies Act 2013 dissuaded private issuers from raising new money, data released by Prime Database on Monday said.

Companies raised Rs43,147 crore through private placements in April-June 2014 down from Rs96,186 crore in the corresponding period of last year.

Both private as well as public sector companies and financial institutions raised less money than they raised last year, according to the data.

“Debt issuances had fallen in the first quarter of this year because many companies, especially public sector ones, were avoiding issuing new paper due to impending election results. Also, there were concerns regarding debenture redemption reserve by financial institutions and NBFCs (non-banking finance companies)," said Pranav Haldea, managing director of Prime Database.

Public sector companies avoided the debt market in April-May because elections were underway because of which government sanctions had taken a breather. The election results were announced on 16 May.

Public sector companies did not raise any funds during the period, down from Rs8,568 crore in the same period last year while state financial institutions raised just Rs98 crore down from Rs1,251 crore last year.

Banks and private sector companies also went slow in mobilising resources. The private sector raised Rs28,991 crore, down 24% from Rs38,161 crore last year while banks raised Rs13,058 crore, a decline of 72% from Rs47,272 crore last year.

Private companies, especially NBFCs, stayed away after the new Companies Act 2013, which came into effect from 1 April, said companies will have to keep aside 50% of the amount raised through debentures in a separate debenture redemption reserve (DRR) account, thus impacting its profits.

Also companies were told to take shareholder approvals for raising money through the debt market. However, these norms were subsequently dropped.

Haldea said the drop in the debt market issuances was only short term and the market has improved since. Prime Database estimates that Rs19,821 crore was raised from the market in July up from Rs9,037 crore last year and Rs11,701 crore was raised in August slightly lower from the Rs11,945 crore last year. However, these numbers could be revised by the end of the quarter.

Close