Manappuram Finance, a non-deposit taking NBFC and India’s leading gold loan company, is entering the debt capital market with a maiden public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each on 18^th August 2011 to raise Rs. 400 crore with an option to retain another Rs 350 crore, taking the total fund raising to Rs. 750 crore.

The issue, rated ‘AA-’ by CARE and Brickwork, indicating high safety for timely servicing of debt obligations carrying low credit risk, closes on 5^th September, with an option in company’s hands to either close the issue earlier or extend the closing. The NCDs, to be listed on BSE with one NCD comprising a trading lot, would be available only in the demat form with minimum application amount being fixed at Rs 5,000 and in multiples of Rs. 1,000 thereafter.  

Under the current issue, there are two different tenures being offered to investors – 400 days and 2 years. Based on the type of investor and the tenure of instrument, different interest rates ranging from 12% to 12.20% p.a. are being offered:

* Rs. 1,132.25 per NCD will be paid on redemption (inclusive of interest)

Thus, the highest rate of interest is being offered to individuals / HUFs for investment upto Rs. 5 lakh at 12.20% per annum, which lead to a yield of 12.56% as interest payment is semi-annual. The interest payable would be taxable (similar to bank FDs), although there is no tax deduction at source (TDS).

Manappuram Finance has a gold loan portfolio of Rs. 6,371 crore as of 31^st March 2011, comprising more than 20 lakh gold loan accounts, with 12 lakh customers served through a network of 2,064 branches. For FY11, company earned total income of Rs. 1,182 crore and net profit of Rs. 283 crore on equity of Rs. 83 crore. With net worth of Rs. 1,924 crore, gross NPAs of 25 crore (0.39%) and a very healthy capital adequacy ratio (CAR) of 29.13%, the company enjoys sound financial position along with a strong balance sheet. Funds raised via the NCD issue will be used in regular financing business.

These NCDs are for a shorter duration as compared to other NCD issues from the recent past, probably because the company in engaged in gold loans which are small term in nature, having average maturity of about 4 months. This issue is attractive for those individual / HUF investors looking to park funds in fixed investment schemes for 1-2 year’s time perspective, as the interest rate is attractive, given the shorter tenure.