Unrated and lesser-known issuers are increasingly tapping India’s debt capital markets, driven by strong investor appetite for higher yields and flexibility in structuring. According to recent data, these issuers have raised about ₹1.5 lakh crore in FY26, up from ₹1.06 lakh crore in the same period last year, making them the second-largest group of borrowers in the market.
Why Unrated Issuances Are Growing
Unrated and unlisted debt instruments are attractive for companies and investors for several reasons:
- Quicker access to funds: These issuances often bypass procedural delays and regulatory disclosures associated with listed bonds.
- More flexibility: Without mandatory ratings, issuers can negotiate terms and structures privately.
- Investor yield premium: To compensate for higher risk, many unrated papers offer significantly higher coupons compared with top-rated bonds. For example, some private credit deals are priced in the 12–20 % range, while AAA rated corporate bonds generally price closer to the sovereign yield plus a modest spread.
In the current fiscal year, nearly 1,783 issuers have utilised the unrated or “not known” category to raise funds, with a noticeable presence of smaller and mid-sized borrowers accessing this segment.
Who Is Investing in Unrated Debt?
Unrated instruments are attractive mainly to investors who can evaluate credit risk independently:
- Private credit funds and Alternative Investment Funds (AIFs): These players are among the primary buyers because they face fewer regulatory constraints compared with insurance companies and banks.
- High-net-worth individuals (HNIs) and family offices: These investors often seek yield enhancements that are not available in higher-rated bonds, provided they are comfortable assessing the associated credit risks.
- Some notable examples in the unrated space include issuer-specific deals by corporate groups, reflecting diversified participation across sectors.
Risks and Considerations
While unrated debt can offer higher yields, it also carries certain trade-offs:
- Lower liquidity: These instruments may not trade actively in secondary markets, making it harder to exit before maturity.
- Higher credit risk: Without a rating, investors must undertake their own credit assessment to understand default probabilities and recovery prospects.
For investors with the ability to analyse credit risk closely, unrated debt can be a potential addition for yield enhancement within a diversified fixed-income portfolio. However, appropriate due diligence is critical.
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This content is for informational purposes only and does not constitute investment advice.