Media reports indicate that promoters of Indian companies are increasingly preferring to raise funds through debt and investors are also willing to offer it through structured deals or their NBFC arms that could either be a part of their investment group or backed by them.
Compared to equity funding, these investors prefer to deploy in debt instruments, reports indicate.
The market is tilting towards debt as promoters are finding that premium on equity is very high. It is 30 percent now from 20-24 percent earlier, said Saurabh Bhat, chief executive, Ambit Finvest Pvt. Ltd, an NBFC that is a part of Ambit Holdings Pvt. Ltd.
Several firms need debt for growth capital, and investors like PE funds provide multi-asset solutions as mezzanine financing helps firms that are still in the growth phase, and the promoter does not need to dilute stake or raise expensive equity, sources opine.
Investors typically put in money across debt and equity, depending on their risk and return appetite. Focus on one or the other is dependent on economic cycles, dislocations in markets and individual risk and return trade-off assessment.
Risk perception in the Indian market rose because of depreciating currency, high inflation, corruption at high places and poor corporate governance. This is making the cost of equity in India relatively higher than in other parts of the world. In such a scenario, equity deals have become difficult, reports indicate.
Leave a Reply
You must be logged in to post a comment.