Will Manappuram put its borrowing programme on hold?

 Officials aver issue will hit market in January

KOCHI: Will Manappuram Finance put its $750 million euro medium term note (EMTN) external borrowing programme on hold for the time being?

The leading gold finance company had indefinitely postponed the meeting of the Financial Resources and Management Committee scheduled for December 3, 2019 for finalising the key terms of the debt programme, including tenure and pricing.

Though VP Nandakumar, the MD and CEO of the company, had earlier indicated that the first tranche of the $750 million EMTN programme – at $300 million, would be launched by November end or first week of December, the indications are that the issue may not take place before the last week of January next year or maybe further later.

Talking to businessbenchmark.news over phone, the chief financial officer (CFO), Ms Bindu AL, confirmed that the issue would not take place before January.

“There is enough interest in the marker for our paper, but we may not launch it before January in order to ensure a better timing for the issue in the market,” she said.

But according to market experts, the international ratings the company received from two international agencies – S&P Global Ratings and Fitch Ratings may have queered the pitch for the company’s fund raising ambitions.

To make matters worse, the international ratings agency Moody’s Investors Service, last month downgraded India’s outlook to negative from stable on concerns that country’s economic growth will remain materially lower than in the past

Financial analysts have expressed doubts that the below-investment-grade ratings Manappuram received from S&P and Fitch recently- BB-/B and BB- respectively (with stable outlook) may have prompted Manappuram Finance Ltd to postpone the launch of its EMTN programme to January next year or even beyond.

“Rating is very important when it comes to investments from large financial institutions such as pension funds and insurance companies.”

However, they noted that this is not going to pose any immediate pains to the company on the liquidity front as the company has sufficient credit lines established with banks.

Nandakumar had earlier explained that the company would not face and liquidity issue in the immediate future, adding that there was unpredictability about liquidity issues in the industry going forward.

A few weeks ago, the leading gold loan company, Muthoot Finance which enjoys international rating a notch higher compared with Manapuram, had also raised $450 million from overseas market as part of its $2 billion external commercial borrowing (ECB) programme

Earlier in February, commercial vehicle financier Shriram Transport Finance Company also had raised $400 million through its maiden offshore bond issuance.

In the quarter ended September 30, Manappuram reported an 82 per cent jump in its consolidated profit to Rs402.28 crore, compared with the same period last year.

S&P as part of its ratings rationale had said the rating on Manappuram reflects the company’s exposure to economic risk in India, its only market. Despite an estimated market share of about 5 per cent of total gold lending, Manappuram is still a relatively well-known brand in India, according to S&P.

“While its closest specialized gold lender peers are Muthoot Finance (with 12 per cent market share) and Muthoot Fincorp (5 per cent), there remains huge competition from banks and unregulated financiers in this highly fragmented market,” the rating agency noted.

Apax Partners LLP’s 10 per cent shareholding is the largest single holding in Manappuram outside of the promoters, granting it a seat on the board, with Baring Private Equity Partners India Ltd maintaining the only other material single holding at 9 per cent..

The international agencies have also observed that

Manappuram’s funding is reliant on mutual funds and banks, mostly short-term and repayable on demand.

“Similar to the sector, costs remain elevated at up to 9.6 per cent for shorter tenors since late 2018. Manappuram was able to raise commercial paper (CP) from six large mutual funds, although only one new short-term bank limit was obtained in late 2018,” the agency noted further.

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