Amid COVID-19 lockdown woes, businesses face difficulties in raising funds

As India grapples with the global health crisis, its companies are struggling to raise funds amid existing circumstances. Due to nationwide lockdown, the majority of local money managers who provide assistance in keeping the cash flow for India’s smaller companies are discarding corporate bonds to meet redemptions. 

In a major hit for India, Franklin Templeton Mutual Funds on April 24 closed down six of its debt funds which have been managing assets worth nearly Rs 25,900 crores. As a result of the funds being shut down, the wealth of investors of over Rs 30,000 crore has been lockdown in. Responding to the funding crisis Indian businesses are facing currently, the company’s global CEO Jennifer M Johnson had blamed the markets regulator SEBI’s (Securities and Exchange Board of India) October 2019 order allowing mutual funds to invest only 10% in unlisted non-convertible debentures (NCDs). However, on Friday, Franklin Templeton issued an unconditional apology to the market regulator and its senior official for the comment.

As per media reports, yields on corporate bonds fell up to 5-7 basis points in the secondary market after an increase in demand from mutual funds, banks among other stakeholders. Funds houses witnessed a redemption pressure from their credit risk funds, particularly, after step taken by Franklin Templeton, one of the oldest asset management companies in the world.

At the same time, some of the country’s leading companies are leaning towards Japanese lenders due to relatively cheapmoney for their funding. According to a report by BloombergQuint, a record of 181 billion yen ($1.7 billion) has been raised by leading Indian companies from Japanese loans this year.

The Reserve Bank of India (RBI) is also working on boosting the credit flow to the country’s businesses. However, the Central Bank has faced difficulties to mitigate the funding pressure. The Coronavirus crisis and nationwide lockdown to contain the pandemic have brought the economy and business of the country to a standstill.

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