Retail bond issuance preferred route of fund raising for NBFCs despite costs

In a bid to meet working capital requirements more Non-Banking Finance Companies (NBFCs) are seen opting for retail issue of Non-Convertible Debentures (NCDs) rather thanCommercial Papers (CPs). This would help them to broaden the investors base as well as it is considered a more stable source of funding Stock Market Trading Tips

Muthoot Finance is planning to raise Rs 400 crore by public issue of bonds in order to meet their working capital needs. "Going for retail NCDs over CPs helps us to broaden the investors base. We typically prefer NCDs of tenure 400days to 6 & 1/2 years. Even now we are planning to raise retail NCDs for up to Rs 400 crore of tenure of 400 days to 6 & 1/2 years at coupon rate of 10 per cent to 11.25 per cent," said George Alexander Muthoot, managing director of Muthoot Finance.

Muthoot also said that the company may do another retail NCD issue in the last quarter of the fiscal Personal Numerology Trading Tips

IFCI is another company in which the public issue of bonds is currently open. The issue shall close tomorrow and even they may do another issue of bonds in the next one year. "The back-up lines of funding from banks are not always available due to which retail NCDs are better. Besides that retail NCDs can be raised even for longer tenures," said Malay Mukherjee, CEO & managing director, IFCI.

The cost of retail NCDs turns out to be higher and these NBFCs are willing to pay that for the advantages attached to it. "Rather than dependence on banking channels which are basically seasonal in nature companies are getting away from that. These companies are diversifying their borrowers base. More companies may go for retail NCDs rather than CPs. Retail NCDs may not be cheaper, but they are a stable source of funding for companies. Retail NCDs of tenure 1 year turns our to be 50-75 basis points higher than CPs," said Ajay Manglunia, senior vice president (fixed income), Edelweiss Securities Commodity Trading Tips

However, experts believe most of these retail NCD issuances may pick up next year as the bias is towards a fall in interest rates. That would make it cheaper for NBFCs to raise funds through this route. With inflation expected to soften, the Reserve Bank of India (RBI) may start cutting interest rates as a result of which retail NCDs will be cheaper Intraday Trading Tips