Leading NBFC Muthoot Finance Limited is in the market from May 10 to June 10 to raise money for its non convertible debentures (NCDs) offering an interest rate of 9.25% to 10% annually. Only in April, Muthoot Group’s housing finance arm Muthoot Homefin had issued NCDs offering the same coupon rates – 9.25% to 10%. Not only that, the gold loan company had tapped the market in February too with the same offering.
Muthoot Finance is a “Systemically Important Non-Deposit Taking NBFC” (NBFC-ND-SI) headquartered in the south Indian state of Kerala. This company has evolved over a period of 79 years since M George Muthoot (the father of company promoters) founded a gold loan business in 1939 under the heritage of a trading business established by his father, Ninan Mathai Muthoot, in 1887. RupeeIQ examines whether one should invest in Muthoot Finance NCDs.
Latest NCD issue in detail
Rating – [ICRA] AA (Stable)” and CRISIL AA/Stable
Nature of NCD issue – Secured Redeemable Non-Convertible Debentures
Issue Period – May 10 to June 10
Issue Size – Base Issue of Rs 100 crore with an option to retain oversubscription up to Rs 900 crore
NCD face value – Rs 1,000 per NCD
Minimum Application – 10 NCDs (Rs 10,000)
Mode of Allotment and Trading – In dematerialised form only
Registrar – Link Intime India Private Limited
Debenture Trustee – IDBI Trusteeship Services Limited
Depositories – NSDL and CDSL
Mode of Application – ASBA mandatory
NCD interest rates
There are 10 options for interest rates from this Muthoot Finance NCD issue.
Out of 10, there are 6 options where you can get paid interest of 9.25% to 10% per year. The interest will be paid annually or monthly.
There are 4 remaining options where the interest will be paid cumulatively i.e. at the end of the maturity period.
Take a look at the interest rate options below
Additional read: Edelweiss NBFC’s debentures offer 10.40% coupon: We check what’s hot and what’s not
Muthoot Finance strength & weaknesses
» Market leading position in the gold loan business in India with pan-India reach and branch network
» Strong brand name, track record, management expertise and promoter support (Muthoot Group)
» Quality customer service and robust operating system
» Track-record of strong capital raising ability
» Strong finances
» Trusted by customers
» High South India business concentration
» New non-gold loan business
» NBFC industry turbulence
» Vulnerability of operations to adverse gold price movement
About NCD instrument in general
NCDs carry higher risk than bank deposits. That is why you get higher returns than bank FDs. That said, NCD issuers normally do not default, but risk remains. In a default type situation, secured NCD holders would be given higher priority than the holders of subordinated NCDs. Please do not invest your entire investible surplus in one company/group’s NCDs. Do not make NCDs more than 25-30% of your fixed income portfolio component.
RupeeIQ take – We have not come across complaints about interest payment delays. But that is history. Anybody who is investing in the current issue must evaluate the Muthoot Finance afresh. The positives of Muthoot Finance business outweigh the negatives, though. So, Muthoot Finance NCDs are good. New investors can take the shorter maturity options such as 24 or 38 months to gain trust and comfort about Muthoot Finance’s repayment abilities, instead of committing to 60 or 90 months option.
Disclaimer – Please note that investors are requested to consult their financial, tax and other advisors before taking any investment decision.