Gold loan non-banking finance company (NBFC) Muthoot Finance launched the fifth tranche of its secured issue of non-convertible debentures (NCDs) on February 8.

It has a base issue size of Rs 100 crore with an option to retain oversubscription of up to Rs 400 crore for a total of up to Rs 500 crore.

Muthoot Finance has raised rates by 0.35-0.5% compared to the previous tranche launched in November 2022.

The NCD has seven investment options, with monthly or annual interest payments or redemption at maturity, with annual interest rates ranging from 8.25% to 8.6% for individual investors.

The NCDs are rated AA+ by ICRA Ltd, with a stable outlook. It plans to list on the BSE, and the placement is first-come, first-served.

Approximately 75% of the net proceeds raised through this tranche will be used for loans and the remainder for general corporate purposes.

The minimum application amount for the NCD issue is Rs 10,000, denominating Rs 1,000 each.

Speaking about their 30th NCD issue, George Alexander Muthoot, Managing Director of Muthoot Finance, said, “In light of the recent rate hike by the RBI, we have also increased the interest rates for the 30th NCD issue by 0.5%, 0.4%, 0.35% per annum for two, three and five years respectively. We have allocated 90% of the bonds to retail and high net worth individual investors who will earn 0.5% per annum above the rates available for institutions and corporations.”

ICRA’s AA+ rating for NCDs indicates a high level of security in meeting financial obligations promptly.

Also, financially speaking, Muthoot Finance is a relatively stable company, with its gold loan book more than doubling in the past five years to Rs 56,177 crore as of June 2022.

According to ICRA, Muthoot Finance may change its outlook or upgrade its rating if it maintains a favourable overall asset quality and capital position in the medium to long term. A strong track record and improved geographic diversity in the non-gold sector would also positively impact the rating.

ICRA said that as of June 30, 2022, Muthoot Finance’s consolidated portfolio is currently concentrated in gold loans, accounting for 89% of total loans, while microfinance, affordable housing and auto finance accounted for 7.4%, 2.3% and 0.3%, respectively.

Gold loans are generally considered riskiest because households only use gold as collateral as a last resort. However, there is some comfort in the excellent credit rating and safety of this NCD.

Moreover, the company’s operations are mainly concentrated in South India, which accounts for 60% of its total branch network and 50% of its entire loan portfolio.

Regarding credit quality, the issue is not rated AAA and is considered to have the highest security rating.

Additionally, while NCDs offer 8.25-8.60% for two to five years of maturities, certain banks currently offer fixed deposit (FD) rates of 7-7.5% for similar maturities.

For seniors, the interest rate payments on FDs can go up to 8%. Also, keep in mind that fixed deposits are more liquid than NCDs.

According to experts, any type of capital, especially when it comes to debt allocation, is best deployed in multiple vehicles.

Muthoot Finance’s NCD offering started on February 8, 2023, and will end on March 3, with an option to finish earlier.