Mahindra Finance in talks to raise $300 million via masala bonds

Mahindra Finance, a rural focussed non-banking financial company (NBFC), provides auto loans mainly for buying tractors, utility vehicles and cars. Photo: Bloomberg

Mahindra and Mahindra Financial Services Ltd (Mahindra Finance) is in talks to raise as much as $300 million via masala bonds, according to two people directly aware of the company’s discussions with potential lenders.

Masala bonds are rupee-denominated offshore bonds sold to foreign investors and settled in dollars, unlike debt raised in foreign currency which are vulnerable to exchange rate fluctuations.

According to the persons cited above, who spoke on condition of anonymity the bonds will be placed in two tranches and will mature in five years and seven years, respectively.

Mahindra Finance, a rural focussed non-banking financial company (NBFC), provides auto loans mainly for buying tractors, utility vehicles and cars. India’s largest tractor and utility vehicle manufacturer, Mahindra and Mahindra Ltd, holds 51.2% stake in Mahindra Finance.

A spokesperson for Mahindra Finance declined to comment on its fundraising plans.

The plan to raise debt through the masala bonds route follows the company’s equity fundraise last year.

In December, Mahindra Finance raised Rs1,056 crore through qualified institutional placements (QIP).

QIP is a capital-raising tool through which listed companies can sell equity shares, fully and partly convertible debentures, or any securities other than warrants that are convertible into stocks, to a qualified institutional buyer.

Reasons for the masala bond sale were not immediately known. In an interview in December 2017, Ramesh Iyer, vice-chairman and managing director of Mahindra Finance, had said the company was open to evaluating acquisition opportunities.

The plan to raise debt comes after a strong turnaround in its financial performance.

For the third quarter this financial year, Mahindra Finance posted a consolidated net profit of Rs365 crore as against a net profit of Rs12 crore during the corresponding period last year. The sharp growth in profit was led by improvement in rural cash flows and a consequent drop in loan provisions and write-offs. Consolidated total income rose 26% to Rs2,195 crore from Rs 1,748 crore.

Provisions and write-offs fell to Rs223 crore during the quarter from Rs442 crore a year ago. In the past one year, several lenders have raised funds through both equity and debt routes to expand their loan books.

In October, PNB Housing Finance Ltd, a housing finance company sponsored by state-owned lender Punjab National Bank and backed by private equity investor Carlyle Group, raised close to $1 billion by selling masala bonds. In September 2016, Indiabulls Housing Finance Ltd raised Rs1,330 crore by issuing its first masala bonds to overseas investors, to fund its housing finance business, particularly loans in the affordable home segment.

Earlier in March 2017, Housing Development Finance Corp. Ltd raised about $504 million (about Rs3,300 crore) through masala bonds to fund business expansion.

Other lenders that have raised funds through the masala bond route in the recent times include Shriram Transport Finance Ltd and Cholamandalam Investment and Finance Co. Ltd.

On Wednesday, shares of Mahindra Finance fell 1.62% to close at Rs438.6 on the BSE, while the benchmark Sensex lost 0.88% to close at 34,757.16.