Reliance Capital Ltd (RCL) has received a subscription of Rs 500 crore for its Rs 100-crore maiden debt issue.
This way, it has set a benchmark for interest rates that non-banking finance companies can charge. The issue will close today.
The top-rated three-year non-convertible debentures (NCDs) carrying an yield of 15.5 per cent and the five-year NCDs with a yield of 15.75 per cent were snapped up by domestic and foreign banks, regional rural banks, mutual funds and corporates. Sources point out that the rates offered by RCL will form the base interest rates for NBFCs.
Apart from setting a benchmark that a Triple A company can charge, the coupon offered by RCL has also fixed the differential in interest rates that NBFCs and manufacturing companies can offer.
For instance, earlier a non-banking finance company with a rating similar to that of a manufacturing company had to offer almost three percentage points more than the latter.
However, now with the RCL issue, this spread has come down.
For example, Reliance Industries, a manufacturing company, had raised five-year money at 14.5 per cent, while RCL has mopped up funds with the same tenure at 15.75 per cent, which puts the spread at 1.75 percentage points. RCL plans to retain funds up to Rs 300 crore, the amount for which it has been rated. It is felt that the company could have achieved a much tighter pricing given the extent of oversubscription.
However, sources pointed out that a very tight pricing would meant no upside for the investor. Besides, they said the current pricing will enable secondary market trading of this listed debt paper.
Also, sources said the RCL coupon will help the slew of NBFCs which are planning to hit the debt market with bond issues. These non-banking finance companies are raising long-term money to reduce their dependence on fixed deposits. GE Capital is already in the market and others to follow suit include Ashok Leyland Finance, Kotak Mahindra Primus, Anagram Finance and Lloyds Finance.
Apart from RCL, the only financial services company which completed its placement is Karnataka State Financial Corporation, that raised Rs 80 crore for five years at 16 per cent.
One of the reasons attributed to the large success of RCL's debt issue is the excess liquidity in the market.
Considering that RCL will retain Rs 300 crore, the appetite for other issue will come down. Hence, other NBFCs are likely to hasten their plans to raise debt funds.
The success of RCL bond issue in the midst of the CRB capital market crisis indicates that investors still retain their confidence in large non-banking finance companies .
There was earlier a fear of a run on the liabilities of NBFCs, which has been put to rest by the RCL issue, sources point out.
The top-rated three-year non-convertible debentures were snapped up by domestic and foreign banks, regional rural banks, mutual funds and corporates
