Non-banking finance companies (NBFCs) are rushing to raise funds through non-convertible debenture (NCD) issues, to cash on the strong investor appetite for high-yielding debt instruments at a time when making money from stocks has become difficult.
India Infoline Investment Services, Muthoot Finance, Shriram City Union Finance and Manappuram General Finance have all prepared NCD issues in the next few weeks.
An NCD is a type of loan issued by a company that cannot be converted into stock and usually carries a higher interest rate than a convertible debenture.
| IN THE PIPELINE NCDs coming in the next few weeks | |
| Company | Estimated amount (Rs cr) |
| India Infoline Investment Services | 750.00 |
| Manappuram General Finance | 1000.00 |
| Muthoot Finance | 1000.00 |
| Shriram City Union Finance | 750.00 |
“Typically, retail investors will be inclined to take some risk and look at equity when interest rates are low,” said Nirmal Jain, chairman of Mumbai-based IIFL. “But if they get a healthy interest rate of 11-12 per cent, there is a good enough return for them to allocate a larger part of their assets to fixed-income instruments like NCDs,” he added.
India Infoline, a unit of IIFL, is planning to raise up to Rs 750 crore from an NCD issue in the first week of August.
The Reserve Bank of India has raised its key policy rates 11 times since March 2010 to curb inflation. This has made fixed income instruments like NCDs attractive for retail investors.
Uncertain returns from stocks have also made retail investors risk-averse. The Bombay Stock Exchange benchmark, the Sensex, has lost over 10 per cent in this year, making India one of the worst performing markets in the world.
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“The corporate bond market which was active in the mid-90s is getting revived,” said R Sridhar, managing director, Shriram Transport Finance. “The recent issues have been received very well by the market, as listed NCDs are liquid and provide exit options to the investors. We will raise another tranche through this route in the second half of the financial year,” he added. The Chennai-based firm raised Rs 1,000 crore through an NCD issue last month, which was subscribed a little over five times.
Muthoot Finance, the largest gold financing company in India, is planning an NCD issue within a couple of weeks. The company planned to mobilise Rs 1,000 crore through the issue to augment its gold loan business, said the company’s chairman, M G George Muthoot.
“NBFCs are looking to broadbase their liability side and, hence, they are tapping the bond market more actively as compared to in the past, when banks and mutual funds were the major source of funds for these institutions,” said Y M Deosthalee, chairman and managing director, L&T Finance. According to officials, the cost for NBFCs, which are planning to raise money through NCDs in the next few weeks, will be more than 12 per cent, including issue expenses. These firms are lending to their customers at 15-16 per cent, on an average.
(With inputs from George Joseph)