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Can retail investors light up Diwali for NBFCs?

NBFCs could be preparing for a spurt in festive season demand for loans after a damp first half of the year.

, ET Bureau|
Updated: Aug 02, 2019, 06.16 AM IST
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More than half a dozen non-banking finance companies (NBFCs) including Tata Capital Financial Services, Rural Electrification Corp, Aditya Birla Finance (ABFL), Tata Housing Finance, Mahindra Finance, IIFL Finance and JM Financial are preparing to raise as much as Rs 25,000 crore from retail bond sales.

They could well be preparing for a spurt in festive season demand for loans after a damp first half of the year.

“For the need of diversification on its liability pool, companies are reaching out to retail & high networth individual (HNI) investors,” said Ajay Manglunia, MD and head- institutional fixed income, JM Financial. “This could well be a year of record public issuances with a lot of them, especially non-banking companies, lining up.”

“With festivals kicking in, some NBFCS would be preparing for loan demand in coming months,” he said.

Tata Capital Financial Services is aiming to raise Rs 3,000-4,000 crore while Tata Housing Finance is likely to tap retail money to raise up to Rs 5,000 crore.

Aditya Birla Finance too is in talks designing a bond sale of similar quantum.

Rural Electrification Corp has appointed about seven domestic arrangers to launch its planned public issue to mop up Rs 5,000-10,000 crore. Earlier, it sold tax-free bonds via initial public offer.

Emails sent to Tata companies, REC, ABFL remained unanswered till press time.

“Non-banking finance companies have been struggling to raise institutional money,” said Ashish Agarwal, executive director, AK Capital. “That is why shadow banks are planning to chase retail money offering higher coupons than bank or corporate deposits. Retail issuances are going to rise this year that could see record public issuances of bonds.”

“Big names are expected to hit the market first ushering the path for others,” he said.

Such proposed bonds will start hitting the market from early August with multiple maturities ranging of three-five-seven-year to 10-year. Top rated companies including REC, Tatas and Mahindra could offer 7-8 per cent. Any double-A rated paper may yield 9.50-10.50%, dealers said.

Such bonds would be designed to offer attractive options with higher interest rates coupled along safety and liquidity; key in the midst of a crisis of capital.

“The motive is to move away investors from traditional products such as bank/corporate deposits, riskier bets on equity and mutual fund debt schemes considered as only available investment options,” Manglunia said.

Mahindra Finance is also planning retail issuance of bonds where one of its subsidiaries too could raise money. Shriram Transport Finance is already in the market aiming to raise up to Rs 10,000 crore.

IIFL Finance and JM Financial may go for smaller issuances with base size in the range of Rs 100-300crore. Total size may rise up to Rs 1,000 crore and Rs 500 crore. Indiabulls Consumer Finance too looks to sell such bonds.

“The budget proposal to remove the debenture redemption reserve (DRR) requirement for NBFCs (which is applicable only on their public issues) may encourage entities to tap the retail route,” said A M Karthik, vice president and sector head, Financial Sector Ratings, ICRA.

On July 5, Finance Minister Nirmala Sitharaman proposed scrapping the obligation of debenture redemption reserves (DRR), a provision that requires NBFCs to build a reserve over the term of the debt to repay investors. It was often termed as a stumbling block for NBFCs to raise money via public bonds.
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