Fixed Income
Is Muthoot Finance NCD issue good for investment?

The risky business environment does not make it good enough

Muthoot Finance, a non-banking finance company (NBFC) primarily providing gold loans to individuals is looking at raising a corpus of Rs2,500 million through an issue of non-convertible debentures (NCDs). The NCD issue offers debentures of five types on basis of tenure and yield and are termed as option I to option V. The sequence of five options is depicted below:

Is the issue worth investing in? The issue enjoys a credit rating of AA- from ICRA and CRISIL, similar to NCD issues of Religare Finvest and India Infoline, with a highest interest rate of 12.40% for option III, whose tenure if five years or 60 months. The interest rate is lower than 12.75% of Religare Finvest. But remember that higher interest rates carry with them, a higher risk.

The NCD of India Infoline was of a subordinate nature, which means in case the company gets liquidated the principal debtor will be serviced before the investors investing in this NCD issue. The Religare Finvest NCD is in the form of secured debt with ‘first floating pari passu charge’, which means that the debt is fully secured and is not subordinate to other debt providers. In case of liquidation of the company, your debt is secured against immovable property of the company, if any. In case of Muthoot Finance, the NCD issue, besides being covered with ‘first floating pari passu charge’ on immoveable assets, is also covered by ‘first floating pari passu charge’ on current assets, book debts, loans and advances and receivable including gold loan receivables, both present and future. In short, the NCD issue is covered 100% at any time.

In terms of the risk in investing in the NCD, it is calculated basis the business environment that the issuing company operates it, since that only governs whether the company will be able to pay the promised return or not.

The Muthoot Finance issue is risky since the company’s financial performance is particularly vulnerable to volatility in interest rates as well as of gold prices. The collateral against which the company offers loans may suffer erosion in value by the time principal amount is recovered.

Read earlier articles on gold in Moneylife here: Gold: All told , Gold loans at last draw RBI’s attention, Muthoot Finance NCDs—should you go for it?, Gold loan companies and their murky underbellies, The remarkable financial pyramid of gold loan companiesWhat makes gold finance companies shine bright?.

Although the company has grown over the recent years, thanks to a huge run up in gold prices, it carries contingent liabilities to the tune of Rs4,679.1 million as on 31 March 2012, which could have an adverse effect on its financial condition. In addition to that the provisioning for gross NPAs for the year ended 31 March 2012 is marginally over 13%. The prospectus further states that “should the overall credit quality of our loan portfolio deteriorate, the current level of our provisions may not be adequate to cover further increases in the amount of our non-performing assets.”

The issue prospectus does not say anything about how the funds raised through the NCD issue would be utilised. It says that “We have not entered into any definitive agreements to utilise a substantial portion of the net proceeds of the Issue” and also that “Our management will have broad discretion to use the net proceeds and you will be relying on the judgment of our management regarding the application of these Net Proceeds. Our funding requirements are based on current conditions and are subject to change in light of changes in external circumstances or in our financial condition, business or strategy.”

The debt equity ratio will be 6.37 after subscription of Rs5,000 million in aggregate for NCDs, which is very high considering the risky environment that the business operates in. The issue has come up in a marginally falling interest rate situation, when the profitability of all lending companies is expected to take a hit. Considering all these factors it is best to avoid this issue.





4 years ago

Muthoot NCD yields attractive I give 1 % commission on total amount 91-9462659179


5 years ago

No, you are wrong ! Muthoot Finance NCD issue is good for investment so long as Mr. Oommen Chandy is the Chief Minister of Kerala !!

Ajit Pawar's resignation issue is over for NCP: Sharad Pawar

The party chief will attend a meeting of the NCP legislature party at 4pm on Friday and is expected to announce his final decision on Ajit Pawar's resignation

Mumbai: The exit of Ajit Pawar from the Maharashtra government on Thursday appeared certain with Nationalist Congress Party (NCP) supremo Sharad Pawar saying the issue of the Deputy Chief Minister's resignation is over for the party.


At the same time, the NCP chief said the offer of resignation of 19 other Ministers of the party in the state has not been accepted.


He saw no threat to the stability of the Maharashtra coalition in which his party has been a major partner for the past 13 years.


Maintaining that the decision to resign as Deputy Chief Minister was taken by Ajit himself , Sharad Pawar told PTI that after the party leadership gave Ajit "permission" to step down after due consideration, he handed over the resignation letter to Chief Minister Prithviraj Chavan.


"After that, the issue of the resignation is over for the NCP," the party chief said, noting that Ajit had wanted to put in his papers so that there should not be any doubt about he is pressurising anybody on the white paper on irrigation projects, an idea floated by the Chief Minister.


Amid the continuing stalemate over the resignation of Ajit Pawar, the NCP chief and Union Minister is arriving in Mumbai on Friday and is expected to take a final call on the issue.


Pawar will attend a meeting of the NCP legislature party at 4pm tomorrow, party sources said on Thursday.


A meeting of NCP legislators had yesterday unanimously adopted a resolution requesting Ajit Pawar to take back his resignation.


They also authorised party chief Sharad Pawar to take a final decision on the issue which will be binding.


"When a leader takes a step, then his supporters react and his supporters have reacted. There is nothing wrong with that. But it is the job of senior leaders to take a sensible decision on time in moments like this," the party chief had said.


"After much thought, we have told them (other Ministers) that their resignations would not be accepted. You have to work and you have to continue to run the government," the Union Agriculture Minister said in Kolkata.


Top NCP leaders are in Kolhapur today to attend the funeral of party veteran and former state Assembly Speaker Babasaheb Kupekar.


Chief Minister Prithviraj Chavan held a series of informal meetings at 'Varsha', his official residence, with Congress leaders and legislators on the prevailing political situation.


State Congress chief Manikrao Thakre also met party office bearers and workers at the state party office to apprise them of the developments.


Congress sources speaking on condition of anonymity said there is no need for the party to convene a formal meeting of office bearers or legislators because no decision is required to be taken now.


"The only decision that is to be taken by Chavan is on accepting Ajit Pawar's resignation. This will be done after he talks to Ajit Pawar and Sharad Pawar," the sources said.


In an indication of a division in the party on Ajit Pawar's resignation, NCP legislators yesterday requested him to withdraw it, while Sharad Pawar's close aide and Union Minister Praful Patel said it should be accepted.


However, everybody has maintained that Sharad Pawar's decision will be final.


Talking informally to the media, Ajit Pawar had last night rejected suggestions of a rift between him and uncle Sharad Pawar.


"This (reports of rift) is a creation of the media. Sharad Pawar is the supreme leader of the party and his decision (on the resignation) will be final," he said but refused to comment when asked if he would withdraw the resignation if asked by the NCP supremo.


Nissan launches Evalia priced at Rs8.4 lakh to Rs9.99 lakh

The Evalia, which claims 50% more fuel efficiency than its rivals at 19.3 km per litre, is Nissan's sixth model in India and the third one to be made locally

Mumbai: Japanese auto major Nissan Motor, which forayed into the Indian multi-utility vehicle segment by rolling its first seven-seater multi-purpose vehicle (MPV)`Evalia', is eying to double its sales this year, reports PTI.


"We plan to double our sales this year and also aims to achieve the 1-lakh-unit sales by next year," Nissan Motor India Managing Director and Chief Executive Takayuki Ishida told reporters in Mumbai.


Last year, the company sold around 33,000 units of its five models here - the locally made hatchback Micra, the sedan Sunny along with imported X-Trail, Teana and the 370Z.


The Evalia, which claims 50% more fuel efficiency than its rivals at 19.3 km per litre, is Nissan's sixth model in India and the third one to be made locally.


Ishida said the company is targeting 2,000-2,500 units per month of the Evalia, which has been launched in four diesel variants and priced in the range of Rs8.40 to Rs9.99 lakh (ex-showroom Navi Mumbai).


The Evalia, along with two Nissan vehicles launched earlier - Micra and Sunny - have at present 85% localisation. Plans are afoot to have them 100% localised in the shortest possible time, he said.


Yesterday, Nissan had said it would launch 10 new models in India, including the Datsun brand, by 2016.


The company, which will be introducing 51 new models by 2015-16 globally, said it will look to expand production capacity in India, either through new plants or the existing facility at Chennai.


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