Indian Corporations Turn to Domestic Bonds for M&A Financing Amid Favorable Pricing

In August 2025, Indian corporations have increasingly turned to the domestic bond market to finance mergers and acquisitions (M&A), driven by strong demand from capital-rich mutual funds. This trend marks a significant shift from previous reliance on internal funds and equity during the COVID-19 era to leveraging the debt market due to favorable pricing.

This surge in acquisition financing has contributed to a record ₹4.75 trillion in corporate bond sales in 2025, marking a 15% increase over the previous year. Notable transactions include JSW Paints' ₹50 billion bond issuance to acquire Akzo Nobel's Indian unit, Manipal Hospitals' ₹53 billion bond plan for Sahyadri Hospitals, and Torrent Power's consideration of an ₹84 billion bond for L&T's thermal business.

During the COVID-19 era, companies primarily relied on internal funds and equity for acquisitions. The current favorable pricing in the debt market has prompted a move towards bond issuances. Mutual funds, managing over ₹2 trillion in corporate bond funds, are attracted by appealing yield spreads, playing a central role in this financing shift.

JSW Paints, part of the $23 billion JSW Group, has agreed to acquire Dutch company Akzo Nobel's Indian subsidiary in a deal valued at approximately €1.4 billion ($1.64 billion), including debt. This move significantly bolsters JSW's presence in the competitive Indian paint market, which is facing challenges such as fluctuating raw material costs, rising competition, and dampening urban consumer spending. The transaction, possibly the largest in India's paint industry, involves JSW purchasing a 74.76% stake in Akzo Nobel India for ₹89.86 billion ($1.05 billion) and launching an open offer for the remaining public-held shares. Akzo Nobel, known for its Dulux brand, had been reviewing its South Asian operations to streamline costs. While the Dutch company will retain its industrial coatings and R&D operations in India, it expects to net €900 million from the sale, which is set to conclude in Q4 2025. Akzo Nobel India’s shares surged over 11% following the announcement but remain down 1.4% year-to-date. Analysts note the acquisition gives JSW a valuable scaling opportunity, though integration challenges may allow rivals to consolidate their positions in the high-end market segment.

Manipal Hospitals plans to raise ₹53 billion through bonds to acquire Sahyadri Hospitals, aiming to expand its footprint in the healthcare sector. Torrent Power is considering an ₹84 billion bond issuance to finance the acquisition of Larsen & Toubro's thermal power business, enhancing its capacity in the energy sector.

"During COVID, acquisitions were largely funded through internal accruals or equity raises, but we are now witnessing a trend where companies are returning to the debt market, and that's largely because the pricing is conducive," said Sunain Mehra, a Mumbai-based investment banker.

Currently, Indian regulations prohibit banks from lending for M&A activities, compelling companies to turn to non-banking financial companies (NBFCs) or issue bonds to secure funds. The State Bank of India (SBI) has formally requested the Reserve Bank of India (RBI) to permit banks to finance corporate acquisitions, suggesting a phased approach beginning with acquisition financing for large listed companies. "We've been formally requesting the regulator... that at least start with some listed companies where the acquisitions are more transparent and are approved by the shareholders," stated Challa Sreenivasulu Setty, Chairperson of the State Bank of India.

The increased use of the bond market for M&A financing reflects a maturing financial ecosystem in India, providing companies with more avenues for growth and expansion. The active participation of mutual funds indicates strong investor confidence in the corporate sector's growth prospects. The push for regulatory changes, such as allowing banks to finance acquisitions, suggests a recognition of the need for more flexible financing options to support corporate growth.

The recent surge in Indian companies utilizing the domestic bond market for M&A financing underscores a significant evolution in corporate financing strategies. This trend not only highlights the growing role of mutual funds but also points to potential regulatory shifts that could further transform the financial landscape.