Sources of Debt-Finance and CPSEs with High Debt-Equity Ratio
| DOI | 10.1177/0019556120160404 |
| Published date | 01 October 2016 |
| Author | Sharat Kumar |
| Date | 01 October 2016 |
| Subject Matter | Article |
SOURCES OF DEBT-FINANCE AND CPSEs WITH
HIGH DEBT-EQUITY RATIO
SHARAT KUMAR
Companies
in
India,
for
long, have depended on bonds
for
both short-term
and
long-term loans. Recent
years
have seen
introduction
of
new financial instruments in debt-finance that
are more competitive
and
less cumbersome to avail. The Central
Public Sector Enterprises (CPSEs) also need to take advantage
of
these developments. While the short-term borrowings
of
all
the CPSEs
put
together stood
at
Rs.
2,
18,
804
crore, the long-
term loans outstanding
of
all the CPSEs
stood
at
Rs.
8,
82,
784
crore in 2014-15. The CPSEs, therefore, have a stake in debt-
.finance. They
need
to
be
prudent, however, in their borrowings
· taking cognizance
of
sustainability
of
debts.
INTERNAL RESOURCES (IR), Budgetary Support (BS) and Extra-
Budgetary Resources (EBR) are the three sources
of
raising finance by
the Central Public Sector Enterprises (CPSEs). IR are profits retained and
accumulated by the company over the years. Loans
or
debts, in tum, are
availed by CPSEs through both the avenues
of
BS and EBR. While in
the case
of
BS it is sourced from the government, in the case
of
EBR it is
sourced from the market. Since BS to CPSEs has been declining over the
years and stands at less than five per cent
of
their total financial resources
each year, the CPSEs have to focus
on
the market for their debt finance.
Instruments
of
Debt-finance
Debt-finance from the market (both short-term and long-term) in
India has been raised traditionally from the banks. Recent years have seen
introduction
of
a number
of
debt instruments, both
in
the money market
and in the capital market. Broadly, these instruments comprise (CPs), non-
convertible debentures (NCBs ), corporate fixed deposits and corporate
bo.nds
that may be raised in the domestic market. Foreign Currency Convertible
Bonds (FCCBs), trade credits (supplier's credit/buyer's credit) and 'masala
bonds'* are other debt instruments available for raising funds from abroad.
*Masala bonds
are
bonds issued outside India
but
denominated in Indian Rupees, rather
than
local (foreign) currency. ·
To continue reading
Request your trial