Manappuram chief hints at liquidity challenges in future

Company to launch $300mn EMTN first tranche within one month

KOCHI: Kerala’s storied gold loan companies that have long been giving their banking ‘big brothers’ a run for their money seem to be frenetically preparing themselves for a ‘drought’ season with liquidity posing a question mark before them.

Though these companies including Muthoot Finance and Manappuram Finance don’t face any liquidity challenges in the immediate future, market experts fear if the banks pull the plug, these companies will be in trouble as a big chunk of their fund base is made of banks’ credit lines.

While 49 per cent of Muthoot’s fund base at Rs13,773 crore is contributed by banks and financial institutions (FIs), Manappuram Finance depends on banks and FIs to the extent of more than 64 per cent for their borrowings– at Rs11,778 crore.

Both the gold loan majors have already set their eyes on overseas markets for a portion of their future funding requirements through dollar borrowings. Muthoot has recently concluded a deal to raise $450 million, whereas Manappuram is preparing to launch a $750 million euro medium term note (EMTN) programme from November end or first week of December.

Importantly, the banks that have been lavishly extending funds to these non-deposit-taking NBFCs, have seemingly taken a cue from their NBFC counterparts and become aggressive on gold loans as part of a strategy to remain risk averse and at the same time profitable.

To a question whether Manappuram faces any problem in terms of liquidity, VP Nandakumar (seen in the picture), Managing Director & CEO of the company, tried to remain non-committal.

“So far, so good, but the market is not predictable for the future,” he added. Nandakumar said the first tranche of the EMTN programme will seek to raise $300 million. Meanwhile, the company is waiting for its rating from a global agency since the issue is meant to raise funds from overseas markets.

Muthoot brushed aside any uncertainty on liquidity front for the foreseeable future. Talking to about the recent $450 million overseas borrowing, KR Bijimon, COO, Global Operations, Muthoot Finance, said the external borrowing was an exercise to establish one more window for funding as it is always prudent to maintain diversified funding sources.

But the price these companies will have to offer to do these external borrowings signals desperation, according to experts. “The pricing close to 6.5 per cent will ultimately work out a cost of around 11 per cent given the cost of hedging, and this is about 200 basis points above the current cost of borrowing for these companies,” said a top official of one of the leading NBFCs.

Nandakumar acknowledged that the cost of funding will certainly be on the higher side. But he said the company needs to have predictability on liquidity, adding that Manappuram is keen on bringing down the quantum of commercial paper (CP) on its liability.

CPs that constituted 23 per cent of Manappuram’s borrowings as of June 2019, has grown marginally to 24.7 per cent as of September 30, 2019 – above Rs4500 crore.


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