Grasim Privately Placing Rs 50cr Ncds At 14.5%

Grasim Industries Ltd, the flagship of the A V Birla group, is raising Rs 50 crore by privately placing non-convertible debentures (NCD) at a rate of 14.5 per cent, which was the coupon on the Reliance Industries Ltds benchmark bond issue.

The company is tapping the NCD market for the second time in less than a month for raising resources to fund its long-term working capital requirements. Grasim is tapping the market in quick succession as interest rates have bottomed out and the rates are anticipated to move up with the onset of busy season, said a merchant banking source.

 

The present easy liquidity scenario is an opportune time for blue chip corporates like Grasim to enter the market for 3-5 year debt funds raising. Once credit off-take picks up and inflationary pressure starts mounting with expected hike in oil prices, medium-to-long-term interest rates shall become firm and start rising, the source said. The Rs 50-crore series-II secured redeemable NCD issue, slated to hit the market on June 16, will effectively mean the company raising Rs 100 crore during the first quarter of the current financial year. Earlier, during the month, the company had raised Rs 50 crore at 14.75 per cent and the issue was concluded on June 4. .

The series-II debenture, rated AAA by CARE, is being issued and redeemed at par. The instrument does not have a call-and-put and greenshoe option with a five year bullet repayment. Besides, the minimum investment is for Rs 5 crore. .Interest rates have been reduced by 25-basis points to 14.5 per cent for the series-II issue (14.75 per cent for series-I) as the instrument has been secured by a pari-pasu first charge on assets of the company. The earlier issue was secured by a second charge on the assets of the company, hence the higher rate. Further, no discount, commission or brokerage is offered as the NCD is being privately placed. Hence, there is no increase in borrowing cost over the coupon rate. However, interest being payable half-yearly gives a yield to maturity (YTM) of nearly 14.8 per cent on a five-year period holding. ANZ Investment Bank and Birla Global Finance Ltd are the lead arrangers of the NCD issue.

Said a merchant bank official Grasim is preferring the NCD route over funding from financial institutions. This is because cost of institutional funds is still higher despite a downward revision of PLRs by FIs . Cost of institutional funds work out to over 17.5 per cent as they lend with a minimum spread of over 350-basis points over its PLR.