Mumbai: Non-banking finance companies (NBFC) Magma Fincorp, LT Finance and Shriram City Union are tapping retail investors to raise funds as banks have tightened lending to the sector after the ILFS default crisis and investors became wary about investing in NBFCs.Magma Fincorp plans to raise up to Rs 500 crore by offering coupon at 10.25% to 10.75% for various tenors per annum.
Shriram City Union is looking to raise up to Rs 750 crore at 9.55% to 9.75% per annum, while LT Finance has issued a second tranche of its public offering to add Rs 500 crore with an option to retain oversubscription up to Rs 1000 crore at coupon rates between 8.7% to 9.05%.Magma has traditionally been dependent on bank lines for funding with 70% of the funding from banks, said Kailash Baheti, CFO, Magma Fincorp.
There is crowding out at various banks and after ILFS crisis, NBFCs were flocking to banks so there was need for diversification of borrowing.When Magma assessed raising funds through public non-convertible debentures (NCD) 15 months back, the cost was high and so we postponed it.
The cost of raising funds through retail NCDs is at par with bank term loans at 10.5%, Baheti added.NBFCs cost of funds has gone up post ILFS default with their blended cost rising 0.75%-1%.For Magma, incremental borrowing for the year would be Rs 5,000 crore to Rs 7,000 crore, said Baheti.
The company will look to raise Rs 1,000 crore to Rs 1,200 crore through commercial papers that will mature this quarter.We would like to cap CPs at 10% of the borrowing and take retail borrowing to 10%, said Baheti.Magma has seen a slowdown in demand for finance in cars and commercial vehicle segments.
This is when SME and housing has been growing because of non-availability of funds from smaller NBFCs.
Large housing finance companies like DHFL are going slow in disbursing loans.For Shriram City Union, about 50-55% of their funds come from banks.
While they expect the banks share in funding to remain, the NBFC is also looking at retail investors as they are more reliable than the risky short term commercial paper route.Retail debt, though more expensive than bank funding, its stickier.
We dont expect any additional dependence on CPs as bank funding is visible now, said R Chandrasekar, ED and CFO, Shriram City Union Finance.LT Finances debt size has grown to Rs.87,818 crore in Q3 FY19 from Rs.71,577 crores in Q4 FY18, while increasing its NCD issuance percentage to 42% in December 2018 from 33% in March 2017.This way we managed to insulate ourselves from the rising interest rates post the September 2018 liquidity crisis, and this helped us in keeping our borrowing costs under check, said a company spokesperson.
The company has a well-diversified borrowing mix spread across bank loans, NCDs, CPs, FCNR loans etc.
The bank funding at the group level stands at 36% of the total debt mix.