Goldman Sachs (India) Finance Ltd (GIFL), a non-banking finance company (NBFC), plans to raise up to Rs 1,000 crore through commercial papers (CPs), a short-term funding instrument, for supporting business growth.
GIFL, formed after acquisition of Pratham Investments and Trading in FY09, will focus on promoter financing (asset backed), underwriting and trading of bonds. Goldman Sachs also runs investment banking and institutional broking businesses in India. Fitch Ratings has assigned GIFL a national long-term rating of ‘AAA(ind)’ and also affirmed its commercial paper programme at ‘F1+(ind)’.
NBFCs have stepped up fund raising through commercial papers in the last two months after the banking system shifted to a base rate regime from July 1. Under the new regime, a bank cannot lend to funds below its base rate. Most banks have fixed their base rate between 7.5 per cent and nine per cent.
A chief executive of a financing company involved in syndicating CPs said, at present, the interest rates on short-term paper are less than bank lending rate. But, the gap between these has narrowed due to strain on liquidity in the system and the effect of Reserve Bank of India (RBI) hiking short-term policy rates.
The lower end of the interest rate band for issuing CPs increased from 3.85 per cent in early April to 6.10 per cent in early August. However, the increase at the upper end was not as sharp. A CP in April could be issued in the range of 3.85 per cent to 8.40 per cent, which rose to 6.10 per cent and nine per cent in early August, according to RBI data.
Rating agency said GIFL has low internal accruals due to its start-up status and higher loan loss provisions. In this backdrop, the company will require further capital infusions in the next two years to scale up its business, particularly with the high concentration risk in its business.
GIFL plans a matched asset and liability profile, with cash outflows being funded in advance, it said.