Fullerton India raises
Rs 500 cr via masala bonds

18 October 2016

Fullerton also plans to raise up to Rs 1,000 crore through debentures and subordinated debt from domestic market

Singapore sovereign wealth fund Temasek-owned Fullerton India Credit Company Ltd (FICCL) has raised Rs 500 crore through masala bonds to support business growth.

This offering makes Fullerton the first foreign-owned company in India to issue rupee-denominated bonds overseas. Masala bonds are financial instrument issued outside India but denominated in the rupee.

Fullerton India will issue masala bonds of Rs 500 with a fixed annual coupon of 8.125 per cent and a tenor of 3 years and 1 month. Credit Suisse was the banker to the offering.

Shantanu Mitra, CEO and MD of Fullerton India, said this issuance enabled Fullerton India to tap and develop a new source of funding. The money will finance Fullerton India’s growth plans. The notes will be listed on the Singapore Stock Exchange.

Masala bonds are attractive given the deep pool of liquidity available for Indian borrowers, said Rajiv Baruah, head of India fixed income, Credit Suisse AG.

Anand Natarajan, head of strategy and business execution, FICCL, said the tenure of the bonds matched the maturity profile of asset portfolio. The finance company plans to raise more funds through masala bonds. Fullerton also plans to raise up to Rs 1,000 crore through debentures and subordinated debt from domestic market. ICRA has assigned a “AA+” rating, with stable outlook, to the NCDs and subordinated debt of FICCL.

The rating assigned takes into account FICCL’s strong profitability indicators, supported by moderation in its cost of funds and improved operating efficiencies.

The growth in loan book has been healthy at Rs 11,980 crore at end of June 2016, from Rs 8,669 crore as on March 2015. There is an expectation of sustained improvement in asset quality given FICCL’s increasing thrust towards secured lending.

The ratings continue to take into account the comfortable capitalisation levels, stable asset quality indicators and the company’s strong management team with vast experience in retail finance.

The ratings draw comfort from the company’s strong parentage. FICCL is a step down subsidiary of Temasek Holdings. It benefits from the parent’s strong brand franchise, managerial support and expected funding and capitalisation support, should the need arise.

The credit strengths are partly offset by the moderate, though improving, scale of operations and increasing competition in the secured lending space that could potentially pose challenges.

There is higher share of unsecured lending businesses in the overall profitability of FICCL. But this portfolio has performed reasonably well through difficult macro conditions.

FICCL has shifted its focus towards secured lending in retail mortgages, rural lending and small and medium-sized enterprises (SME) while moving away from low income segment, a segment perceived to be more vulnerable to economic shocks.

The share of secured loans increased with higher proportion of disbursements towards retail mortgage, SME and mortgage lending. Their share in total asset portfolio rose to about 49 per cent as on March 2016, from 31 per cent as on March 2012.

During first quarter ended June 2016 (Q1FY2017), the company reported a net profit of Rs 74 crore on a total income base of Rs 635 crore.

Its capital adequacy stood at 21.9 per cent (Tier I at 16.1 per cent) as on March 31, 2016.