Magma Fincorp becomes first NBFC to issue perpetual bonds

Indian bond markets witnessed a yet another landmark deal with Magma Fincorp, an asset finance company, bringing in first ever unsecured non-convertible subordinated perpetual debentures issue for non-banking finance companies (NBFCs) in India.

A K Capital was the "sole arranger" in structuring and placement of the deal. The proceed would qualify as the Tier–I capital for the issuer, under the guidelines of the Reserve Bank of India (RBI). The deal was rated as 'AA-'. The deal was valued at Rs 30 crore, including the greenshoe option. Market participation was observed from the banks and financial institutions. The issue has been brought in 18 months after the RBI allowed NBFCs to issue perpetual bonds. A perpetual bond is a bond with no maturity date.

Taking into consideration, the need for enhanced funds for increasing businesses and to meet the regulatory requirements, the RBI in October 2008 permitted the systematically important non-deposit taking NBFCs to supplement their capital funds by the issue of perpetual bonds in accordance with the guidelines.

As per RBI directions, NBFCs were permitted to issue perpetual bonds in the form of bonds and debentures and the capital raised is eligible for inclusion as Tier–I capital to the extent of 15 per cent of the total Tier–I capital at the end of the March 31 of the previous year.