Mutual funds and institutional investors are still wary of lending to non-bank financiers, and tighter market liquidity has weighed on company ratings, which deteriorated at the fastest pace in 6 yrs.
Faced
with high borrowing costs and a sustained shortage of liquidity in
India’s money markets, shadow banks are increasingly pitching bonds
with high coupon rates to the public, who may not be aware of the
risks they’re taking on.
Still
roiling from the shock of defaults at Infrastructure
Leasing & Financial Services Ltd., non-bank financing
companies are exploring this relatively expensive funding channel.
Mutual funds and institutional investors are still wary of lending to
non-bank financiers, and tighter market liquidity has weighed on
company ratings, which have deteriorated at the fastest pace in six
years.
Individual
investors in other markets have gotten burned. In Singapore, about
34,000 buyers of Hyflux Ltd.’s debt stand to lose almost everything
with the fate of the water and power company in the balance. In the
Indian market, a lot of companies are selling public bonds with the
purpose of building a retail base, said Ashish Agarwal, executive
director at A. K. Capital Services.
“The
risks of these segments are obviously there and one must be mindful
while taking investment calls,” said Karthik Srinivasan, group head
of financial sector ratings at ICRA Ltd., the local unit of Moody’s
Investors Service. Retail investors may have been swayed by the
potential returns on offer and haven’t totally taken into
consideration the risks involved, he said.
Public
corporate bond issuance by NBFCs increased to 337 billion rupees
($4.87 billion) in the April-to-January period, the highest for a
fiscal year in at least a decade, data from the securities regulator
show. Volumes stand to increase for the year ended March as final
amounts raised from deals by three more shadow banks, including L&T
Finance Holdings Ltd. and Indiabulls Consumer Finance Ltd., are
incorporated.
Five
non-bank lenders, including L&T Finance again and Shriram City
Union Finance Ltd., have come to the market so far in April. About 80
percent of L&T Finance’s base offering of 5 billion rupees has
been reserved for individual investors, according to the stock
exchange.
Retail
investors typically don’t understand factors such as shadow banks’
liquidity and the sectors they’re exposed to in their loan book,
said Rajat Bahl, chief analytical officer at Brickwork Ratings Ltd.
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