Big Plans Ahead
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THE WINNERS

15 Dec,2012 11:51 IST

Big Plans Ahead

A successful QIP that sees an NBFC buck the trend

Raghu Mohan

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“I have handled over 400 equity issues in my career,” says S. Ramesh, joint managing director at Kotak Mahindra Capital. Last month, he ran another one — the Rs 866-crore qualified institutional placement (QIP) of Mahindra & Mahindra Financial Services. What the Kotak veteran of 25 years did not say is that it was not easy swinging the deal in a depressed market. “Yet, we closed the deal quickly enough in about five weeks, door-to-door.”

So why did a non-banking finance company’s (NBFC) QIP get a good reception even when the sector is not shining. Says Sameer Lumba, managing director & CEO of collaborator JM Financial Institutional Securities: “All NBFCs are not the same; they have their niches. And those with good corporate governance and depth of management will always find strong investor interest”. Adds Sonia Dasgupta, managing director of investment banking: “The QIP route is a very efficient way to raise funds in a timely and cost efficient manner.”

M&M Financial Services’ QIP was the largest at the time of its launch; then came Hinduja-promoted IndusInd Bank’s offering of Rs 2,000 crore (which is still on).

The M&M NBFC issued 9,750,257 equity shares at a price of Rs 889 per share; the issue price was at a 0.94 per cent premium to the Securities and Exchange Board of India (Sebi) floor price of Rs 880.70 a share.

It is no secret that the Reserve Bank of India (RBI) does not particularly like NBFCs. In addition to this, M&M Financial Services faces competition from banks and other NBFCs in vehicle finance, as well as a slew of regulatory curbs that are in the works. In August 2011, a working group on NBFCs headed by former RBI deputy governor Usha Thorat opined that NBFCs that are not sponsored by banks be subject to a higher risk weight for capital market and real estate exposure. On 2 May 2011, RBI said loans given by banks to NBFCs after 1 April 2011 would not be priority sector loans. So, while banks may still lend to NBFCs, they may charge higher rates. Then in October this year, Sebi mandated that mutual fund debt schemes’ exposure to the sector not exceed 30 per cent of their net assets.

Even though the NBFC sector is facing many hurdles, M&M Financial Services’ QIP got a decent response: it was oversubscribed over five times. The company received bids of about Rs 4,345 crore within 24 hours of launch of the issue. The proceeds were to augment long-term resources and enhance the Tier-1 capital base. “The India story is intact. There is appetite for QIPs of select NBFCs,” says Ramesh. While that may be true, it remains to be seen how the M&M Financial Services story pans out, now that the QIP proceeds are in.

The NBFC says it may consider applying for a banking licence, and also set up an MF business. It is in the process of expanding in the US through MF USA, a joint venture with a subsidiary of the Rabobank Group. But the catch, as the NBFC points out, is that “neither we nor our promoter has significant operational experience in the MF or banking sectors”. But for now it can draw comfort from a transaction well done.

(This story was published in Businessworld Issue Dated 24-12-2012)

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