Only 34% Firms Meet SEBI's Mandatory Requirement To Raise 25% Fund Via Debt Instruments: Analysis

Only 34 per cent of the 320 AAA- and AA-rated companies have met their 25 per cent incremental fund raising through debt instruments as of FY22, nearly three years after market regulator SEBI's mandate for such firms, an analysis showed. These companies have an outstanding debt of Rs 34 lakh crore as March 2022, according to an analysis by India Ratings, which says that these companies will have to borrow an additional Rs 6,890 crore by FY24 to meet the SEBI regulation.

In FY19, SEBI passed a guideline wherein the listed large corporates with borrowings of Rs 100 crore or more and with credit ratings of AA and above would have to borrow 25 per cent or more of the incremental borrowings through bonds. The regulator allowed them to meet the norm in a contiguous block of two years. And the companies were to meet the criteria beginning FY20.

The regulation also sets a penalty of 0.2 per cent of the balance debt amount in case a company fails to raise the required percentage of funds through debt instruments like bonds, commercial papers or certificate of deposits. Such incremental borrowings shall be any borrowings done during a particular financial year bearing maturity of one-year or more and can be raised either for refinancing/repayment purposes, excluding external commercial borrowings and inter-corporate borrowings.

Companies must comply with the requirement by the last day of the given fiscal year and shall provide an explanation to the stock exchanges in case of any shortfall within 45 days of the end of fiscal, SEBI had said. According to India Ratings analysis of the debt capital structure of the top 1,700 non-financial debt-heavy corporates and their borrowings from the bond market, over the past one decade, their market borrowings increased to 34 per cent in FY22 from 16 per cent of their total borrowings in FY12.

The agency said among these corporates only, 22 of AAA–rated companies and 69 of the AA-rated ones have met the borrowing requirements as of FY22.This means that 82 AAA-rated and 147 AA-category fell short. To comply with the regulation, they will have to raise Rs 6,890 crore by FY24. Most of these companies which fell short are from crude oil, power, iron and steel and textiles sectors.

On the other hand, incremental bond borrowings will be miniscule in FY24 as 229 companies of the 320 eligible entities which have raised less than 25 per cent of the additional borrowings through bonds, will need to additionally borrow only Rs 6,890 crore by FY24 to comply with the guidelines and majority of borrowings will be by AAA-rated entities.

Also, compared to the total debt of Rs 43 lakh crore as of FY22, the incremental borrowings will be just about 7 per cent, the report said. Most of incremental borrowings by AAA-rated entities are in sectors such as crude oil, automobiles and infrastructure, while for the AA-rated entities, majority are the power, construction, textiles and automobile sectors.