Magma Fincorp will issue secured redeemable non-convertible debentures (NCDs) yielding up to 10.76% to raise up to `500 crore, the firm said on Wednesday. The issue, the lender’s first retail one, will open on April 8 and close on May 8 for three, five and 10-year tenors at coupon rates ranging from 10.24% to 10.76% annually.
The NBFC’s total borrowings amount to `16,500 crore, of which 70% is from banks and 20% is borrowed from the debt markets. “Our cost of funds has grown by 70 bps over the six months ended December 31, 2018, and we expect cost of funds to go higher in Q4 as new borrowings came at a higher cost,” said CFO Kailash Baheti.
The lender’s net interest margin fell by 60 bps q-o-q to 8.4% in Q3FY19 over rising funding costs. “Higher funding costs have had an effect in terms of lower NIMs which in turn has restricted the revenue growth,” analysts at Edelweiss said. “We are off the peak in terms of cost of funds and things are gradually getting back to normal. Magma is comfortable from a capital perspective and continues to be reliant on bank funding and securitisation for its incremental funding needs,” said Sanjay Chamria, V-C and MD.
The management, in a press briefing, said the proceeds raised will be used for onward lending, financing, repayment of interest and principal of the existing borrowings of the firm and for general corporate purposes. “Apart from our borrowing needs, we have come up with this issue to provide a safe investment avenue for our existing borrowers and small-ticket investors and hence, the minimum application for the NCD is placed at `10,000,” he added.
Suman Chowdhury, president-ratings, Acuite Ratings, said,” The firm’s profitability levels continue to be low compared with its peers. While the funding environment for the NBFC sector continues to be challenging, MFL has been able to strengthen its liquidity position by undertaking securitisation transactions on a regular basis.”