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Thursday, December 29, 2011

Muthoot Finance Limited NCD – 13% plus Fix returns

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Apart from attractive rates, the secured nature of Muthoot's lending (loans against gold) offers some margin of safety in terms of loan to value, investment grade rating (CRISIL AA-) and strong track record with 70 years of experience in gold financing business support the investment. An AA- rating is defined as carrying “very low credit risk”.

Investors can avoid the three year and five year instruments as the 0.25 percentage point higher than the two year rate of interest doesn't really make up for the risks of holding on for a longer tenure.

ABOUT THE COMPANY

Gold loans account for 99 per cent of Muthoot's assets under management with predominant exposure to South India. It has a low proportion of non-performing asset (gross NPA ratio of 0.31 as of June 2011) thanks to gold as collateral. Muthoot has made profits in at least last seven fiscal years. It has 120 tonnes of gold against which it lent at average loan-to-value of 72 per cent. The issue also gives comfort from the gold price movement perspective. Gold prices may continue to remain firm for some time given its safe haven status.

The assets under management are close to Rs 18,000 crore. The interest spreads (difference between interest earned and interest expended) of Muthoot was 10.9 per cent for the quarter ended June 2011. The company has been raising money from retail investors for quite some time through private placement of secured NCDs. As of June 2011, retail NCD borrowings accounted for 26 per cent of overall borrowing. The capital adequacy ratio of Muthoot is strong at 19.2 per cent as of June 2011 as against mandatory requirement of 15 per cent.

Issue opening date – 22 Dec 2011
Issue Closing date – 7 Jan 2012
Issue size – INR 300 Crore with an option to retain oversubscription upto INR 300 Crore aggregating to a total of INR 600 Crore.
Instrument – Public issue of Secured Non- Convertible Debenture (NCD)
Ratings – AA-/Stable by both Crisil & CARE
Face Value – INR 1000/NCD
Minimum Application – 5 NCD = INR 5000
Listing - BSE


Coupon Rate %
I
II
III
IV (Yield)

13%
13.25%
13.25%
13.43%
Tenor
24 Months
36 Months
60 Months
66 Months
Interest Payment
Annual
Annual
Annual
Cumulative



A WORD OF CAUTION

Muthoot Finance is the fifth non-banking finance company (NBFC) to come up with a public issue of NCDs in the last couple of months. It is also fourth company in as many weeks to hit the market with secured NCD issue. Given such high dose of NCD issuances, investors should avoid allocating too large a portion of their portfolio to such NCDs.



How to apply to Muthoot Finance NCD?
You can download the forms below

Download Application Forms

Submit the filled up form to Collection canter near you

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