Singapore sovereign wealth fund Temasek-owned Fullerton India Credit Company Ltd (FICCL) has raised Rs 500 crore through masala bonds to support business growth.
This offering makes Fullerton the first foreign-owned company in India to issue rupee-denominated bonds overseas. Masala bonds are financial instruments issued outside India but are denominated in the rupee.
Fullerton India will issue Rs 500 masala bonds with a fixed annual coupon of 8.125 percent, a tenor of 3 years, and one month. Credit Suisse was the banker for the offering.
Shantanu Mitra, CEO and MD of Fullerton India, said this issuance enabled Fullerton India to tap and develop a new funding source. The money will finance Fullerton India’s growth plans. The notes will be listed on the Singapore Stock Exchange.
Rajiv Baruah, head of India fixed income and CEO of Credit Suisse AG, Mumbai, said masala bonds are attractive given the deep liquidity pool available for Indian borrowers.
Arun Natarajan, head of strategy and business execution at FICCL, said the bonds’ tenure matched the maturity profile of the asset portfolio. The finance company plans to raise more funds through masala bonds. Fullerton also plans to raise up to Rs 1,000 crore through debentures and subordinated debt from the domestic market. ICRA has assigned an “AA+” rating, with a stable outlook, to the NCDs and subordinated debt of FICCL.
The rating assigned considers FICCL’s strong profitability indicators, supported by moderation in its cost of funds and improved operating efficiencies.
The growth in the loan book has been healthy, at Rs 11,980 crore at the end of June 2016, up from Rs 8,669 crore as of March 2015. Given FICCL’s increasing thrust towards secured lending, there is an expectation of sustained improvement in asset quality.
The ratings continue to consider the company’s comfortable capitalization levels, stable asset quality indicators, and strong management team with vast experience in retail finance.
The ratings are comforted by the company’s strong parentage. FICCL is a step-down subsidiary of Temasek Holdings. It benefits from the parent’s strong brand franchise, managerial support, and expected funding and capitalization supply should the need arise.
The credit strengths are partly offset by the moderate, though improving, scale of operations and increasing competition in the secured lending space that could pose challenges.
The overall profitability of FICCL includes a higher share of unsecured lending businesses. However, this portfolio has performed reasonably well through difficult macro conditions.
FICCL has shifted its focus towards secured lending in retail mortgages, rural lending, and small and medium-sized enterprises (SMEs) while moving away from the low-income segment, a segment perceived to be more vulnerable to economic shocks Page Design Pro.
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The share of secured loans increased with more disbursements towards retail, SME, and mortgage lending. Their share in the total asset portfolio rose to about 49 percent as of March 2016 from 31 percent as of March 2012.
During the first quarter, which ended June 2016 (Q1FY2017), the company reported a net profit of Rs 74 crore on a total income base of Rs 635 crore. As of March 31, 201, its capital adequacy stood at 21.9 percent (Tier I at 16.1 percent).
