Rush to launch issues before interest rates start rising.
In a bid to raise funds from retail investors before interest rates harden, asset-financing non-banking financial companies (NBFCs) are planning to issue bonds in the next few weeks.
Two of the three NBFCs that floated retail non-convertible debentures (NCDs) last year are planning to take this path again.
L&T Finance, the financial services arm of construction and engineering giant L&T, today said it planned to raise up to Rs 500 crore through a public NCD offer. The isue opens tomorrow.
Commercial vehicle financier Shriram Transport Finance is also planning a retail bond issue, although the details are yet to be finalised, according to Managing Director R Shridhar.
Both had raised Rs 1,000 crore through public offers of NCDs last year. NBFCs routinely place bonds with institutional investors since NCDs, along with bank term loans, are a major source of funds for them. However, public NCD offers are rare and are usually preferred by asset-financing NBFCs looking to reach out to potential customers.
L&T Finance will issue three-year bonds at 8.4 per cent and 8.5 per cent coupon rates for semi-annual and annual interest payments, respectively.
The issue closes on February 22 and is being marketed by JM Financial, Citigroup Global Markets and Kotak Mahindra Capital. “The differentiating factor in this issue is the tenure, since investors may not like to lock in funds for a long period in this rising interest rate environment. We are offering a good price compared to other fixed-income investment options available to retail investors,” said N Sivaraman, executive vice-president of L&T Finance.
The company had raised Rs 1,000 crore in August last year through 5-,7- and 10-year retail bonds. The country’s largest lender, State Bank of India, is offering 6.5 per cent on three-five year fixed deposits (FDs).
“It makes sense for borrowers to enter the market now before rates harden further,” said a senior executive of a foreign investment bank. “This is good quality paper and since liquidity is not a concern yet, pricing is the key. A spread of 200 basis points over FD rates is decent,” he said. Tata Capital had set the ball rolling last year with a Rs 500-crore issue. The response encouraged the company to retain Rs 1,500 crore.
Asked if Tata Capital was planning another retail bond issue, Govind Sankaranarayanan, its chief financial officer, said, “We are a listed entity and hence would not be able to comment on our public fund-raising plans. We continue to raise funds through private placement of NCDs on an ongoing basis.”
Sankaranarayanan said it was possible that companies would look to tie up their long-term funding at present market rates given that interest rates were expected to rise.
Investment bankers said while there was adequate appetite among retail investors for bonds, only top-rated issuers would be able to raise funds through this route.
“Retail investors are brand and name conscious and will not go for lower-rated paper,” said a senior executive from a foreign bank. For example, Dewan Housing Finance had planned to raise Rs 1,000 crore through a public offer of NCDs last year, but has abandoned its plan citing adverse market conditions.
