Risk-averse investors can now hope to earn 11 to 12 per cent interest a year as non-banking finance companies (NBFCs) make a beeline to tap the retail non-convertible debenture (NCD) market.
At least three such NBFCs are planning to come out with retail NCD issues during the current financial year to diversify their funding sources.
Shriram Transport Finance Company (STFC), a Reserve Bank-registered deposit-taking NBFC, will be the first to hit the market on June 27, offering a maximum of 11.6 per cent interest to investors who invest less than Rs 5 lakh for five years.
Higher net-worth investors will, however, get a lower interest rate of between 11 per cent and 11.35 per cent depending on the investment tenure.
Shriram’s NCD offer has two options — one for five years and the other for three years.
The debentures will be later listed on the National Stock Exchange to provide liquidity.
Besides, the issue has a put and call option, which can be exercised at the end of four years.
However, an investor must have a demat account to apply for these debentures. Each debenture is priced at Rs 100, and the minimum application amount is Rs 10,000.
Manappuram Finance and Muthoot Finance are also planning to come out with their NCD offerings soon.
As per Karvy Stock Broking, “NBFCs have so far depended mostly on institutional funding, including banks. But as fund-raising from these sources have become a challenge under the current environment, NBFCs are looking to diversify their lender’s portfolio and turn to the retail debt market.”
Retail investors will be benefited because these NCD issuers will have to offer a higher interest rate than bank fixed deposit rates to attract investors.
Shriram Transport’s offer of a maximum of 11.6 per cent interest rate per annum is a case in point.
In fact, the company had offered an 11 per cent interest for its NCD offering last year, which was listed on the stock exchanges at a premium; the debentures still attract a premium despite a rise in interest rates since then. Debenture price generally comes down when interest rates go up. STFC hopes to mop up Rs 1,000 crore from the forthcoming issue.
STFC is engaged in the financing of new and old commercial vehicles of small road transport operators. The company has more than Rs 36,000 crore assets under management as at the end of 2010-11.
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We are aiming at a 15-20 per cent growth in business in the current financial year and to support this business growth we may need to borrow Rs 12,000 crore,” said R. Sridhar, managing director, STFC.
However, he added that the company would not offer any more retail NCD issues in the current financial year.
