Northern Arc Capital, GAWA Capital Partners raise Rs 106 cr for NBFCs

A pooled bond structure is backed by a partial guarantee; enhancing the credit rating for the loans and lowering the cost of borrowing

Northern Arc Capital, a debt platform for NBFCs, has structured and co-invested in a Rs 106 crore pooled bond with Spanish impact investment fund, Magallanes Impacto.

The fund is advised and managed by GAWA Capital Partners, a leading impacting investing firm in Spain.

This is the first debt transaction in India for both GAWA Capital and Magallanes Impacto. The pool bond issuance will give the investors exposure to financial inclusion-focused NBFCs in India, across education finance, commercial vehicle finance and MSME finance, according to a press release.

The entities that issued the underlying bonds were ASA International India, Aye Finance, Kanakadurga Finance Limited and Thirumeni Finance

A pooled bond structure is backed by a partial guarantee, enhancing the credit rating of the loans and lowering the cost of borrowing. On a standlone basis many borrowers, especially small enterprises, find it difficult to raise funds from diverse lenders at competitive prices. Providing a common guarantee to a pool of loans improves borrowing ability and the pricing for the borrowers. In the case of the latest transaction, Northern Arc provided the common guarantee for Magallanes. 

The pooled bond was issued by Microfinance firm, ASA International India, SME Financing firm, Aye Finance, Commercial Vehicle finance firm, Kanakadurga Finance Limited, and Thirumeni Finance, an NBFC that lends to affordable private schools. The debt raised by these entities will be used for onlending to support income generating activities by small and mid-sized businesses across India, and to expand/improve access to education.

Kshama Fernandes, Chief Executive Officer of Northern Arc Capital said that this is a landmark deal for the industry. It comes at a time when there has been a slowdown in liquidity to financial institutions in the Indian debt markets. Northern Arc’s biggest value proposition to its clients are access to a wide array of reputed investors, efficient structured solutions and co-investment to ensure incentive alignment. This transaction is an illustration of how bringing these elements together can achieve critical funding objectives, especially in a difficult environment. It is also testament to the confidence of investors in the governance and business models of these NBFCs.”

GAWA Capital advises three impact investing funds including Magallanes that invests in financial inclusion and MSME Financing. It is deeply committed to support microfinance companies and NBFCs in the emerging markets. 

It has investments across countries like Chile, Columbia, Peru and India. While the firm has already made equity investments in a few leading microfinance and MSME companies in India, this is the first debt investment in the sub-continent for the impact firm. Luca Torre and Agustin Vitorica, co-CEOs and co-Founders of GAWA Capital said "Debt investments in the India NBFC market represent a great opportunity for our advised fund Magallanes Impacto FIL in terms of both financial returns and social impact. This pool bond issuance allowed to gain a diversified exposure to NBFCs serving several financial inclusion needs in India, including education finance, commercial vehicle finance and MSME finance."