As shorter rates fly, companies adjust working cap math, float longer bonds
Companies are struggling to meet their short and medium-term fund-raising plans and those needing it fast are going for longer-duration paper.
Commercial paper rates are hovering around 10%, banks have ratcheted up lending rates by more than 100 basis points in the recent past, and coupons on medium-term corporate bonds are higher compared with long-term ones.
The result?
Companies are struggling to meet their short and medium-term fund-raising plans and those needing it fast are going for longer-duration paper.
To wit, Rural Electrification Corporation (REC) plans to raise Rs2,000 crore in the next few days by way of private placement of corporate bonds. “We decided to go for 10-year bonds because we are hoping to get the amount at a coupon rate of around 9%. Were we to float a 5-year paper, the coupon would have been around 9.3%,” said an official of REC, who did not wish to be named.REC is in talks with Life Insurance Corporation for selling these 10-year papers.
Others are seen following REC as garnering costs rise.
Ramesh Kumar, senior vice president (debt market), Asit C Mehta Investment Interrmediates, sees more firms stretching their liabilities like REC. “Unless there is clarity on the short-term inflation picture and yield curve turns positively sloping, companies will have no other choice but to take this kind of decision.”
A positively sloped yield curve means the longer the maturity of a bond, the higher its yields.
All this also means the arithmetic of working capital is being upset too — companies are in a dilemma as to which route to tap for this.
“As far as the long-term or medium-term capital raising is concerned, that would not be affected and firms would go as per the plan. But in short-term fund raising, firms will feel ressure on how to manage the budget of their working capital needs,” said Vinod Wadhwani, director, Ambit Corporate Finance. He said companies may also scale down working capital budgets a notch.
“Companies would rather look for efficiencies and try to manage with lower working capital to improve their profitability,” said Hemant Kanoria, CMD of Srei Infrastructure Finance.