NBFCs in fierce competition to raise public funds via NCDs

Saikat Das 
Moneycontrol.com

The competition gets tougher for non-banking finance companies or NBFCs, tapping public money to meet their funds requirement through non-convertible debenture issues.

Gold loan company Manappuram Finance closed its issue on August 26, much earlier than the scheduled closing date on September 5. The company mopped up Rs 470 crore as against the targeted Rs 750 including an oversubscription of Rs 300 crore.

“We have successfully raised funds above our core issue size of Rs 400 crore,” I Unnikrishnan, managing director, Manappuram Finance told Moneycontrol.com.

“We will use such funds in expanding our loan book. We may soon revisit the market again once we allocate these funds in the near future. We will mop up Rs 2,000 crore by the way of bond issues in next 1-2 years.”

It was not clear what made Manappuram to close the issue well in advance especially when the amount was below the total issue size.

So, what took the sheen off the gold-loan major’s NCD issue?

Some market watchers feel the move could have to do with the performance of rival IIFL’s NCDs after they listed on the bourses. IIFL had raised Rs 750 crore through its NCD issue offering an interest of between 11.7-11.9%, and those NCDs listed on the NSE below the face value on the first day of trading. On August 24, they hit intra-day low of Rs 950 and closed at Rs 961 as against the face value of Rs 1,000.

According to market watchers, this pushed IIFL’s effective interest yield to around 17% while Manappuram was offering a yield nearly at 13%.

It works something like this: Investors holding debentures of Rs 1000 are entitled to 11.7-11.9% per annum at maturity. But if you were to get the same debenture for Rs 950, your effective yield would be much higher, because your pay-out at maturity is assured.

“If you are getting a yield of around 17% from secondary market, you will not subscribe bonds offering 13%. This forced Manappuram to close the issue well in advance,” a merchant banker associated with marketing NCD issues told Moneycontrol.com on condition of anonymity.

The relation between bond price and yield is inverse. If bond prices go down, yield will increase and vice-versa. Interest yield means income on interest earned.

Between August 24 and 30, the daily closing price of IIFL bonds did not surpass the face value (Rs 1,000) for a single time. This has implications for other NCDs that were open for subscription during that period.

It is learnt that Muthoot Finance, which planned to raise Rs 1,000 crore (including an oversubscription of Rs 500 crore) through NCDs is planning to close the issue on September 4, a day before its scheduled close on September 5. The company has successfully raised the base amount it was targeting, but will not be able to fill its green-shoe.

NBFCs including Shriram Transport Finance , Shriram City Union , IIFL , Manappuram Finance, and Muthoot Finance have hit the NCDs market to collect funds in the last two months.

Company	Issue Size (Rs in cr)		Coupon Size          (%)	Tenure
	Core issue	*Green-shoe
Shriram Transport Finance	500	500	11.10-11.60	3-5 yrs
Shriram CityUnion	375	375	12-12.10	3-5 yrs
IIFL	375	375	11.70-11.90	3-3.4-5 yrs
Manappuram Finance	400	350	12-12.2	400days-2yrs
Muthoot Finance	500	500	11.75-12.25	2-3-5 yrs

*Green-shoe is the option to retain oversubscription over and above the core issue size.