Muthoot Finance plans floating-rate bond issue of Rs 2,000 cr

Mumbai: Gold loan provider Muthoot Finance is expected to raise up to ₹2,000 crore next week in floating-rate bonds (FRB) maturing in three years, two people aware of the matter told ET, tapping into a growing market for these instruments linked to a more stable, shorter-duration external benchmark.

The paper will be priced 300 basis points above the 91-day treasury bill, said the people cited above.

One basis point is a hundredth of a percentage point. The 91-day T-bill has increased 21 basis points to 5.50% this calendar year. The 10-year benchmark rate, by contrast, has increased 48 basis points to 7.08% as of Wednesday.

The coupon will be reset every quarter, unlike fixed-rate bonds. The bond issue is being arranged by ICICI Securities PD and AK Capital.
Muthoot finance did not respond to mailed queries by press time.

“Fixed-rate corporate bond yields have risen amid expectations of a rate hike, prompting issuers to look for ways to avoid locking in borrowing costs at elevated levels,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a debt advisory firm. “Many companies now are turning to FRBs, which are priced very competitively, with borrowing costs in some cases even coming in below comparable bank lending rates.”
FRBs gained traction as interest rates are expected to rise. Its coupon is benchmarked to 91-day T-bill, allowing issuers to avoid locking in elevated long-term yields.