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April 26, 2024

Indian NBFCs Eye Dollar Bonds to Raise Funds Amid Tight Liquidity Conditions

Amid tight liquidity conditions and increasing funding costs in the Indian financial sector, three major non-banking finance companies (NBFCs) are gearing up to tap into the international market with dollar bond issues, according to bankers familiar with the matter.

Manappuram Finance, Muthoot Finance, and state-run REC are all set to launch benchmark-sized bond issuances, each aiming to raise around $500 million, the bankers revealed on Friday.

This move towards overseas borrowing by NBFCs is seen as a response to the Reserve Bank of India’s (RBI) initiatives aimed at diversifying borrowing sources for financial institutions.

According to Pramod Shenoi, head of Asia-Pacific Research at CreditSights, “Liquidity conditions in India have been tight; in the financial sector lenders are chasing deposits to match the higher credit growth rate.” This has led both bank and non-bank companies to explore options in the dollar bond market.

Manappuram Finance has enlisted Barclays and Citigroup to manage its dollar bond issuance, with a targeted weighted average life of about four years. The firm will conduct investor meetings in Asia and Europe starting Monday for its proposed Regulation-S bonds.

Similarly, Muthoot Finance has appointed Deutsche Bank and Standard Chartered Bank as joint global coordinators for investor calls. The company plans to price its dollar bonds with a door-to-door tenor of around four years in the coming weeks.

Despite the move to overseas markets, the cost of funding for NBFCs remains relatively stable. A senior banker, speaking on condition of anonymity, disclosed that the all-in cost for these dollar bond issuances ranges between 8-9% in rupee terms, which is not significantly higher than their domestic funding costs.

Meanwhile, power financier REC is also considering a benchmark-sized offering and may issue bonds by June, though it has not finalized its banking partners yet. REC recently made its debut in the yen bond market, raising 61.1 billion yen ($390.1 million) in a three-part deal in January.

When reached for comment, Manappuram Finance, Muthoot Finance, and REC did not immediately respond to Reuters’ request.

In conclusion, as Indian NBFCs seek to navigate the challenges posed by tight liquidity conditions and rising domestic funding costs, their foray into the dollar bond market offers a viable alternative for raising capital and diversifying their funding sources.

Jhumpa Lahiri

Jhumpa Lahiri

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