Muthoot Finance, a systematically important non-deposit taking NBFC and India's largest gold loan company, is entering the debt capital market with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each on 23^rd August 2011 to raise Rs. 500 crore, with an option to retain another Rs 500 crore, taking the total fund raising to Rs. 1,000 crore.

The issue, rated 'AA-/Stable' by Crisil and ICRA, indicating high safety for timely servicing of financial obligations carrying very 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 and NSE 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 three different tenures being offered to investors - 2 years, 3 years and 5 years. Based on the type of investor and the tenure of instrument, different interest rates ranging from 11.75% to 12.25% pa are being offered:

Note: Interest will be paid annually in all the above options.

The highest rate of interest is being offered to individuals / HUFs at 12.25% per annum for duration of 3 years, as well as 5 years (without any differential interest rates for investments above Rs. 5 lakh for individuals / HUFs, unlike recent NCD issues by other companies), which is an attractive post-tax return of 8.46%, assuming the highest tax bracket. The interest payable would be taxable (similar to bank FDs), although there is no tax deduction at source (TDS).

Muthoot Finance, India's largest gold loan company in terms of loan portfolio and branch network, has a gold loan portfolio of Rs. 15,728 crore as of 31^st March 2011, comprising more than 47 lakh gold loan accounts, served through a network of 2,733 branches. For FY11, company earned total income of Rs. 2,316 crore and net profit of Rs. 494 crore on equity of Rs. 320 crore, with very low gross NPAs of 0.29%. Having made an IPO in May 2011, company's equity and net worth have expanded to Rs. 372 crore and Rs. 2,397 crore respectively, as of 30^th June 2011. For first quarter of FY12, its total income rose to Rs. 914 crore and net profit to Rs. 190 crore. Thus, the company enjoys sound financial position along with a healthy balance sheet. Funds raised via the NCD issue will be used in regular financing activities,

This NCD issue is attractive for those individual / HUF investors looking to park funds in fixed investment schemes as the interest rate is attractive. Those looking for diversification can subscribe to the issue for either 3 or 5 years at 12.25% p.a. so as to cap returns at the higher end, before interest rate cycle begins to ease out.