($1 = 82.4370 Indian rupees) (Reporting by Dharamraj Dhutia and Bhakti Tambe; Editing by Swati Bhat and Savio D'Souza)
By Dharamraj Dhutia and Bhakti Tambe
MUMBAI, March 14 (Reuters) - Some Indian non-banking firms
looking for funds before the financial year ends are resorting
to less frequently used bond structures to entice investors now
cautious amid an uncertain and volatile global environment,
analysts said.
These companies are now using separately transferable
redeemable principal part (STRPP) bonds, where the principal and
coupon payments are removed, or stripped, and sold separately to
investors who want a fixed income on a particular due date.
This week alone, four companies — REC Ltd , Tata
Capital Financial Services Ltd (TCFS), Muthoot Finance Ltd and IIFL Prime Wealth — have raised around 70 billion
rupees (about $849 million) via STRPP bonds.
"Investors demanded STRPP bonds and we, as an issuer, do
need to consider their requirements," said Oommen K Mammen,
chief financial officer of Muthoot Finance, which has issued
such bonds for the first time ever.
Some of these offerings also have a put option, which gives
investors the right to demand early repayment of the principal.
"Investors have the option to lock in funds for a particular
period of time and if they want to exit, they could exercise the
put option or else stay invested for the entire tenor," Mammen
said.
While REC raised 10-year funds with a three-year put option,
TCFS and Muthoot Finance sold STRPP bonds of less than four-year
duration with a put option.
Issuers do not mind selling such notes, analysts say,
especially as their need for funds is higher towards the end of
the financial year and such offerings do not impact their cash
flows while giving investors more choices.
"The major advantage of STRPP bonds for investors is that a
single tenor could be traded individually and investors could
sell part of the issue which they do not want to hold till
maturity while staying invested in another part of the same
issue," said Venkatakrishnan Srinivasan, founder and managing
partner of debt advisory firm Rockfort Fincap.
For example, if an investor bought three-year and four-year
STRPP bonds, they could sell any one of the options, while
staying invested in the other.
Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.