Investors to Manappuram issue from Singapore, UK and Hong Kong
CL Jose
KOCHI: Close on the heels of Muthoot Finance having decided to raise $650 million from international markets, Manappuram Finance too raised $300 million through the issue of medium-term notes (MTNs).
According to informed sources, the notes were issued at a coupon rate of 7.5 per cent. Fitch Ratings has on May 13, assigned Manappuram Finance’s notes BB- rating, which is considered to be below investment grade.
A Fitch Ratings official release issued on May 13 has stated that these notes are issued in the international market under the Reserve Bank of India’s (RBI) external commercial borrowings (ECB) framework. They are issued under Manappuram Finance’s $750 million secured medium-term note (MTN) programme.
Investors are from Singapore, UK and HK
The investors in this issue were from Singapore, Hong Kong, and the UK. With a hedging cost of 2.86 per cent, the effective rate for the issuer (Manappuram Finance) works out to 10.36 per cent.
The issuers go for hedging while raising funds in a foreign currency to manage the risks associated with fluctuations in the value of the home currency (rupee) against dollar, the currency in which the debt has been raised, but there is a cost to be incurred for hedging.
Talking to businessbenchmark.news, a source close to Manappuram Finance, the second largest gold loan company in the state, said this issue has more to do with diversification of the fund sources and also to ensure a comfortable tenure of the debt, which is 3.3 years, although the coupon or interest this time surpasses that of bank finance.
“Currently, the dependence of Manappuram Finance on bank funding is a bit high, at about 78 per cent of its total volume of stable funding, and hence I too agree it’s high time the gold loan major went for a dollar fund raising too,” financial controller of a bank told businessbenchmark.news while discussing on the funding strategies of NBFCs.
Having said that, it may not be easy for NBFCs to raise funds in dollars from international markets. NBFCs are required to have a better international rating to enter the ECB market. Even in the case of Manappuram, its Fitch international rating of BB- itself could be the lowest rating that qualifies an issuer for an ECB issue.
Manappuram Finance Ltd had about four years ago raised $300 million by way of senior secured fixed rate notes issuance for a three-year tenure.
That time, the issue was placed with a coupon of 5.90 per cent, but the hedging cost was reportedly exorbitant at 5.5 per cent taking the effective pricing to about 11.4 per cent.
