INSUBCONTINENT EXCLUSIVE:
NEW DELHI: Defaults at ILFS and a spike in yields for papers of non-banking financial companies dealt a body blow to commercial paper
issuances in September, which fell to the lowest in numbers since 2010
Prospective issuers with lower credit ratings moved away from the short-term debt instrument in search for alternative arrangements.
At 141,
commercial paper (CP) issuances in September were lowest since June 2010, data compiled from PRIME Database suggests
The number of issuances was way lower than an average of 630 issuances seen in the first eight months of 2018
This was the first month since August 2013 (174) when CP issuances were lower than 200.
In value terms, Rs 28,470 crore of issuances came
out in September – the worst since September 2013 (Rs 20,867 crore)
This was in steep contrast to the record high of Rs 1,76,051.39 crore issuances seen in August, 2018
The average for CP issuances in the first eight months stood at Rs 87,536 crore
Yields have shot up quite a bit
At these yield levels, most NBFCs would not want to borrow from the commercial paper market, said Ashish Shanker, head of investment
advisory at Motilal Oswal Private Wealth Management.
In last 6-9 months, when liquidity was tight, NBFCs relied mainly on commercial papers
and CP borrowing from mutual funds jumped 37 per cent in the first five months of FY19.
Brokerage Nomura India said CPs accounted for 25-30
per cent of incremental funding for NBFCs in last two years.
But yields jumped as DSP sold Rs 200-300 crore worth of DHFL commercial papers
at a discount, which stoked rumours of a systemic liquidity problem in the NBFC space
Defaults at ILFS made matters worse.
DHFL has proposed to reduce exposure to CP as part of overall borrowing plan and increasing hedging
“The market is a bit nervous and illiquid
Quality institutions may not find it difficult to borrow, but for smaller ones, yields have risen to 10-5-11.5 per cent levels
At these yield levels, NBFCs with ALM issues would come to the commercial papers market only if they fail to make some alternate
arrangements with their bankers,” Shanker said.
Analysts insist there was enough demand for good quality commercial papers among mutual
funds, which hold Rs 18 lakh crore in debt assets
It is estimated that mutual funds have deployed 17 per cent of their debt AUM in NBFCs.
Shanker expects the momentum to pick up soon as open
market operations by RBI ease liquidity concerns, and reports suggesting that the government plans to supersede the ILFS board and take over
the company, a move that can boost investor confidence
Some estimates suggest some 292 open-ended debt funds, as many as 18 schemes, had exposure to debt papers from the ILFS group.
