Citicorp to float Rs 250 cr debenture

Citicorp Finance (India) Ltd, a subsidiary of US-based Citigroup, is issuing an innovative debt instrument in the Indian market, where returns for investors would be linked to equity benchmarks.

Rating agency, Crisil has assigned a AAAr/stable rating to the instrument. It said the suffix 'r' reflects the fact that returns on these instruments are also exposed to non-credit risk, in this case market risk; Crisil's rating does not address the variability of returns on account of such risk.

Citicorp plans to raise Rs 250 crore through equity-linked debentures in more than one tranches. The returns for investors in the debentures will vary depending on the performance of an equity benchmark chosen.

The benchmark could be an exchange index of a basket of equity shares. The instrument would also carry options such as capital protection and no capital protection.

The formula for calculation of returns will vary with instrument variants. A particular variant could, for example, provide capital protection with an equity-linked upside, while another one without capital protection could have a possibility of negative returns, Crisil said in a statement today.

Citicorp proposes to use hedging strategies to mitigate the impact of risks arising out of these instruments on its earnings.

Crisil said its rating applies purely to credit risk aspect of these instruments and investors will need to bear in mind that there is significant non-credit risk associated with these instruments, and define their expectations accordingly.

Crisil said diversified resource profile and healthy capitalisation, lend further strength to the rating. Citicorp Finance had a healthy net worth of Rs 930 crore and Tier I capital adequacy of 16 per cent as at March 31, 2006.

The standalone credit risk profile of Citicorp Finance is, however, tempered by the company's recent low profitability levels due to stiff competition, low yields, relatively high operating costs, and modest asset quality.

For the nine months ended December 31, 2005, Citicorp reported a net profit of Rs 2.76 crore, compared with Rs 37.11 crore for the corresponding period in 2004-05.

The delinquency levels (at a 180 days past due level) of its managed portfolio (including securitised assets) have increased to 3.36 per cent as on March 31, 2006 from 1.54 per cent as on September 30, 2004.