Bond issues, a bonus debenture first and a green masala bond all worked because lenders trusted the company behind them.
When a company borrows cheaply, the usual explanation is clever financial engineering. Structuring, timing and market knowledge do matter. But lenders ultimately lend to a name they trust, and the cheapest money goes to borrowers with the strongest reputations.
NTPC Limited, India’s largest power generator, offers a useful case. Under Kulamani Biswal’s leadership as Director (Finance), its own announcement says, the company reduced its cost of debt to 7.81 percent a year. The record behind that figure shows how credibility and skill work together.
The foundation was NTPC’s credit standing. In disclosures covering the period to March 2018, ICRA, CRISIL and CARE all rated its bonds AAA. A top rating from all three agencies is the market’s way of saying a borrower is expected to repay.
Ratings must be kept up, and that takes consistency. NTPC’s debt disclosures from this period report no delay or default. A clean record of that kind is built over many years of paying on time, and a finance chief’s main job is to protect it.
Credibility alone does not secure cheap money, though. It has to be used well. In November 2014 NTPC raised Rs 3,100 crore through bonds in global markets, returning after a gap, and Biswal said investors had received the issue at fine levels inside comparable secondary levels.
That wording is worth reading closely. Pricing inside secondary levels means investors accepted a lower return on the new bonds than similar bonds were already earning in the market. They would only do that for a borrower they considered safe.
The creative side came the following spring. In March 2015 NTPC announced bonus debentures of Rs 10,306.83 crore, which Biswal described as the biggest such issue ever by an Indian company. The government received 618.06 crore of the debentures, worth Rs 7,725.76 crore, for its 74.96 percent stake.
The structure was inventive, but notice what made it workable. The debentures were secured and rated AAA by all three agencies. A novel instrument from a weaker borrower would have faced awkward questions. NTPC’s reputation made it a simpler proposition.
The financing plans were large and varied. For 2015-16 the company set a borrowing target of Rs 15,000 crore, including $750 million of external commercial borrowings, and Biswal said it generally raises about 30 percent of its borrowing from overseas. A steady presence in several markets is itself a sign of confidence.
In August 2016 NTPC tried something new. It raised Rs 2,000 crore through rupee-denominated green bonds sold in international markets, with third-party assurance and Climate Bonds Initiative certification, which the company described as the first green masala bond from India. Newness of that kind attracts investors only when they trust the issuer.
The domestic market showed the same pattern. A September 2016 bond issue was reported oversubscribed three times and was priced 11 basis points inside the corporate 10-year AAA yield curve, with Rs 670 crore allotted. Beating the benchmark for top-rated borrowers means being treated as better than the average AAA.
Much of that trust has structural roots. Rating agencies note that NTPC’s coal, gas and hydro projects are backed by long-term power purchase agreements on a cost-plus basis, which assure stable returns and cash flows. The company’s earnings are predictable, and lenders value predictability.
It would be wrong to say one executive created that credibility. NTPC’s reputation reflects its size, its government ownership and decades of operating history. The finance chief’s task is to preserve that standing and turn it into low-cost funding. His earlier years at electricity regulators, where he had learned how the sector’s economics are judged, probably helped.
Recognition followed. He received the “CFO of the Year” award from EPC World, with E&Y as knowledge partner, and the “Financial Pride of India” award in 2015. The honours were tied to the results, and the results to the trust behind them.
The lesson is a simple one. Clever structures are easy to copy, and any competent treasury can learn them. A reputation for paying on time, in every market, year after year, is much harder to copy. At NTPC, Kulamani Biswal’s work shows that the two work best together.
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