Muthoot Finance to raise up to $550 million via offshore bonds

MUMBAI: Muthoot Finance is set to raise up to $550 million (Rs 3,900 crore) by selling bonds to international investors to expand its gold loan business, three people with direct knowledge of the matter said.

Surging gold price has strengthened the company's financials, which should help it gain investor confidence, dealers said.

Muthoot Finance declined to comment.

Going by offshore secondary market trades, these bonds are expected yield at least 1 percentage point less than its maiden offshore sale last October. “Bonds may yield in the range of 4-5% as the secondary market indicates,” said an investment banker.

The issue of five-year bonds is likely to open for subscription this week. Money will be raised through the Reserve Bank of India’s external commercial borrowing route.

Deutsche Bank and Standard Chartered Bank are helping the non-banking finance company raise the money. Both banks could not be contacted immediately for comment.

The company is already in talks with global investors who are scouting for opportunities amid decreasing supply lines. Chinese issuers, who form a lion’s share in Asian issuances, have shut business amid the coronavirus outbreak.

Last October, Muthoot Finance raised $450 million offering 6.125%. Those bonds are now trading at over 4% in the secondary market.

Global ratings companies Fitch, S&P and Moody’s have graded the proposed issue BB+, BB and Ba2, respectively, with a stable outlook. These ranks are a notch below investment grade.

In its note, Moody’s said the company had a leading franchise and well-established track record in lending against gold jewellery in India, along with strong solvency metrics, including asset quality, capital and profitability.

In January, gold price in the local spot market crossed Rs 42,000 per 10 gms, a record level. This means, the value of the golds that the company is holding against loans disbursed has gone up. This in turn enhances chances of higher recoveries in case of any loan default.

Muthoot Finance’s outstanding loans grew 18.5% year-on-year to Rs 38,498 crore in the December quarter.