Piramal Finance eyes overseas bond market for funding diversification

Piramal Capital & Housing Finance Ltd. (PCHFL), currently heavily reliant on bank funding, plans to continue accessing the overseas bond market to diversify its borrowing sources.

The diversified non-banking finance company (NBFC) aims to increase its borrowing from international sources to 10 to 12 per cent over the next 2-3 years, up from the current 4 per cent.

PCHFL issued its maiden USD-denominated bond this week, raising $300 million at a yield of 7.95 per cent for 3.5 years.

“It is our first offering and we will do more over time,” said Jairam Sridharan, managing director (MD), PCHFL.

“Before this issue, we had less than a 1 per cent of our borrowings coming from international sources. With this, we now have about 4 per cent of our borrowing coming from international sources. Our intent is that 10–12 per cent of our borrowing should be from international sources in the next 2-3 years,” he said.

 

Currently, bank borrowing constitutes 57 per cent of the total borrowing for PCHFL. Around 7–8 per cent of its borrowing comes from mutual funds, and insurance companies.

While the hedging costs have become attractive, the rates in the international market are quite high. The macro environment in the country is prompting the NBFCs to tap the overseas bond market for funding, Sridharan said.

A slowdown in deposit growth, coupled with regulatory constraints, has prompted banks to reduce lending to NBFCs, forcing these non-bank lenders to increasingly turn to international bond markets to secure additional funds, despite high rates.

"Our average cost of borrowing in the domestic market is 8.9 per cent, and incrementally, we are borrowing at 9.25 per cent. The international borrowing after hedging will be more expensive than our domestic borrowing," Sridharan said.

PCHFL received robust demand for its maiden issue, with the order book peaking at $1.3 billion ahead of the release of final pricing guidance. It retained $300 million from 113 investors, with 81 per cent of the funds from Asia and 19 per cent from West Asia. PCHFL will deploy the funds for affordable housing, MSME lending, microfinance, and for some other small business lending.