 "Retail bond issuance preferred route of fund raising for NBFCs despite costs")
Muthoot Finance is planning to raise Rs 400 crore through public issue of bonds. "Going for retail NCDs over CPs helps us to broaden the investor base. We typically prefer NCDs of tenure 400 days to six-and-a-half years. Even now, we are planning to raise retail NCDs for up to Rs 400 crore of tenure of 400 days to six-and-a-half years at coupon rate of 10 per cent to 11.25 per cent," said George Alexander Muthoot, managing director of Muthoot Finance. Muthoot also said the company might do another retail NCD issue in the last quarter of the financial year.
IFCI is another company in which the public issue of bonds is currently open. The issue shall close on Friday and even it might issue another bond in the next one year. "The back-up lines of funding from banks are not always available due to which retail NCDs are better. Besides, retail NCDs can be raised even for longer tenures," said Malay Mukherjee, CEO and managing director, IFCI.
The cost of retail NCDs turns out to be higher and these NBFCs are willing to pay that for the advantages attached to it. "Rather than dependence on banking channels, which are basically seasonal in nature, companies are getting away from that. These companies are diversifying their borrower base. More companies might go for retail NCDs rather than CPs. Retail NCDs might not be cheaper, but they are a stable source of funding for companies. Retail NCDs of tenure one year turns out to be 50-75 basis points higher than CPs," said Ajay Manglunia, senior vice-president (fixed income), Edelweiss Securities.
However, experts believe most of these retail NCD issuances might pick up next year, as the bias is towards a fall in interest rates. That would make it cheaper for NBFCs to raise funds through this route. With inflation expected to soften, the Reserve Bank of India might start cutting interest rates as a result of which retail NCDs will be cheaper. "The domestic bond market continues to grow and companies are better placed now to tap both retail and the mutual fund investor base. The growing size of the mutual fund industry provides a good opportunity to corporates to diversify their funding source," said Sanjeev Lall, managing director (head institutional banking group and branches) - India at DBS Bank.