non convertible debenturesLeading 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

Muthootfin

Additional read: Edelweiss NBFC’s debentures offer 10.40% coupon: We check what’s hot and what’s not

Muthoot Finance strength & weaknesses

Strengths

» 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

Weaknesses

» 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.

Author
Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. He can be contacted on contact@rupeeiq.com