LIC bought Manappuram’s Rs1,100 cr NCDs

KOCHI: LIC has bought the Rs1,100 crore non-convertible debentures (NCDs) recently issued by Manappuram Finance, the second largest gold finance company in the state.

The issue of 1.10 lakh NCDs with a face value of Rsone lakh each to the life insurance major was through a private placement, according to a filing made to the stock markets by Manappuram.

The 10-year debentures that are proposed to be listed on the debt segments of both BSE and NSE carries a coupon rate of 9.22 per cent, which will be paid annually.

However, the effective coupon rate of the NCDs including the issue expenses could work out to more than 10 per cent for Manappuram, according to a rough estimate by analysts.

However, the analysts added that given the longer tenure of 10 years, the pricing of the NCDs cannot be viewed as high, especially at a time when the interest rates are on an upward trajectory.

Talking to myfinpoint, financial service industry experts said the market would witness more of such NCD issues in the forthcoming quarters as the availability of bank funding could become tighter and costlier going forward,

Moreover, both Muthoot Finance and Manappuram had repaid a big chunk of their dollar borrowings raised through external commercial borrowings (ECBs) in the recent past.

On the other hand, most NBFCs have liquidated their commercial papers (CPs) from their liability book.

Analysis of Manppuram’s source of funds shows that while its working capital demand loans (WCDL) and cash credit (CC) have declined from Rs7,199.5 crore to Rs5,351.8 crore in the past one year (as of December end, 2022), term loans have more than doubled during the same period from Rs5,035.6 crore to Rs11,929.4 crore as of December 31, 2022.

The value of NCDs and bonds in its book has fallen from Rs7,592.6 crore to Rs6,720.1 crore during the period under review.

As explained earlier, Manappuram’s commercial paper (CPs), which the gold loan companies had been relying on for short term fund requirements have reduced from Rs1,490.1 crore to just 4.94 crore as of December end, 2022.

Cost of funds on the rise

The recently closed third quarter (Q3) saw Manappuram’s net profit fall 3.9 per cent quarter on quarter (QoQ) to Rs393.5 crore on a consolidated basis, even as the cost of fund rose by 5 per cent during the same period to 8.5 per cent compared with 8.1 per cent in the previous quarter.

While the gold assets under management (AUM) as well as the gold tonnage (consolidated basis) dropped by three per cent and 4.5 per cent respectively during Q3 compared with the immediately previous quarter, non-gold AUM staged a smart performance during the period with a handsome growth of 15.6 per cent – from Rs11,500 crore to Rs13,300 crore.