Loan-against-gold firm Manappuram Finance plans to raise Rs 750 crore through its maiden retail non-convertible debenture issue to fund its growth plans. The issue may be launched in July with a tentative coupon size of 11-12%. “We would like to bring down our dependence on bank loans to pursue growth,” I Unnikrishnan, managing director, Manappuram General Finance told Moneycontrol.com, adding that the company’s cost of funds have increased by 200 basis points in line with the rising interest rates scenario.

The company is aiming to grow its loan book by 40% this (financial) year. “We would primarily tap investors from Gujarat, Maharashtra and south India. We may go for similar retail issue in the second half of the fiscal as well,” Unnikrishnan said. The proposed issue is of Rs 500 crore, but has a green-shoe option of Rs 250. The tenure of the bond issue, according to merchant banking sources, could be upto five years. So far, the company has appointed three merchant bankers to handle the issue. Moreover, the management is not yet decided on terms of call or put option. A call option allows a company to withdraw the issue from investors after a specific date while investors can surrender the issue under put option. Manappuram has borrowed around Rs 4,500 crore from banks, so far.

The company’s loan book nearly trebled to Rs 7,549.2 crore in FY11. Its net interest margin stood at 16%. However, Unnikrishnan expects net interest margin to come down to 14% this financial year due to rising borrowing costs. Manappuram disburse loans against gold with an average ticket size of around Rs 33,000. It charges interest ranging from14-26% depending on the loan to value (LTV) ratio. Higher the LTV, greater the rate of interest.

The company’s first retail bond issue would have been prompted by the tightening of RBI rules on bank loans to non-banking finance companies. Recently, the Reserve Bank of India (RBI) mandated that bank credit to non-banking finance companies for providing loans against gold jewellery would not be treated as priority sector (agricultural loan).

“On removal of priority sector tag, we end up paying 150 bps higher rate of interest. We have absorbed this cost,” added Unnikrishnan who refused to comment on the market buzz that RBI is concerned too on banks’ increasing exposure to NBFC loans. RBI may further tighten rules on loans to NBFCs, a section of analysts feel. In the wake of this, many such retail bond issues are expected from NBFCs who want to bring down their reliance on bank loans, analysts said.

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Posted by Prashant Gandhi on 15 June, 2011 3:23:22 PM IST #