28-Sep-2020
Muthoot FinCorp Ltd launched a non-convertible debenture (NCD) issue, offering yields up to 9.62% for a five-year tenor, on Monday. You can opt for monthly, annual or cumulative interest payment options.
The issue will remain open till 23 October. The NCD is being offered in tenors ranging from 27 months to 60 months and is rated “A” by CRISIL. The issue size is ₹200 crore, with the company retaining the right to keep an additional ₹200 crore from the proceeds.
Muthoot FinCorp is part of the Muthoot Pachappan Group and should not be confused with Muthoot Finance, a listed entity which is part of a separate corporate group. Muthoot FinCorp on a standalone basis had a net worth of ₹3,006 crore and assets under management of ₹14,359 crore, as on 31 December, 2019, according to a CRISIL ratings note issued in May 2020.
Muthoot FinCorp is a non-banking finance company (NBFC) engaged in lending against gold. It also has a substantial non-gold lending business such as microfinance and vehicle finance at more than 40% of the portfolio, as on 31 December 2019, according to the note. Gross non-performing assets (NPAs) were at 2.5%, as on 31 December 2019, it added.
“Muthoot FinCorp has issued six NCD public issues aggregating to ₹1,940 crore in the last six years and mobilized ₹1,639.81 crore. The company has promptly redeemed maturing NCDs and serviced interest at all times,” said company chairman John Muthoot, in an emailed response to Mint.
Experts have taken a cautious view of the NCD due to its A rating (rather than AA or AAA). “At a time when default related issues have been a concern and economic situation remains uncertain, investing in Muthoot, which has a Crisil A rating, is only for those who have a high-risk appetite. Investors should not subscribe to it by only looking at the attractive interest rates, and they must be sure to factor in the element of high risk while taking a decision. Overall, unnecessary risk on the fixed-income side of the portfolio should be avoided,” said Prableen Bajpai, founder, FinFix, a financial research and wealth management firm.
Anand K. Rathi, founder partner, Augment Capital Advisors LLP, highlighted that the company’s non-gold exposure is a concern. “Those who really want to invest should stick to the smallest tenor of 27 months and choose the monthly interest option,” he said.
Interest on NCDs is taxed at your income tax slab rate. Hence, investors, particularly those in the highest tax bracket, should consider the post-tax yield on such NCDs. For example, the 27-month NCD offers a pre-tax interest rate of 8.85%. Post-tax, this is likely to fall to 6.19% for someone who is in the 30% tax bracket.
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