Mumbai: A wholly owned non-banking finance subsidiary of Tata Sons Ltd, the holding company of the Tata group, Tata Capital Ltd is set to enter the bond market to raise about Rs1,000 crore from retail investors, the first by an Indian firm in many years. The money will be used to lend to expand its loan book.
The non-banking finance company, or NBFC, is also exploring other avenues to raise resources at a time when some of the established players in the space are shrinking their business with money becoming more expensive and quality of assets deteriorating.
In an exclusive interview, the first since he took over about 16 months ago, Tata Capital managing director Praveen Kadle said that his company, the “last entrant” in the sector, will “learn from the mistakes” of other NBFCs and is in an “advantageous position” at a time when NBFCs are strapped for cash and global concerns are raised on the business model.
Quite hopeful: Praveen Kadle, Tata Capital managing director, says his company will ‘learn from the mistakes’ of other NBFCs and is in an ‘advantageous position’ at a time when NBFCs are strapped for cash. Abhijit Bhatlekar / Mint
“Some sense of sanity has come into place... Many players have withdrawn from the market and a few players have even increased the rate of interest,” Kadle said.
Till early 2008, many NBFCs of both local and foreign origin aggressively chased consumers in the world’s second fastest growing economy and most of them have piled up huge bad debts as, caught in the sudden downturn, many existing borrowers are unable to pay up.
Kadle declined to reveal details of the retail debt issue such as interest rates but said the company will enter the market shortly. “We are working on it, and it would be a significant amount. If we get (Rs)1,000 crore, we will be very happy,” he said. The bonds on offer will have tenures of three and five years.
Tata Capital is also exploring options to raise money overseas and access resources from the Rs25,000 special purpose vehicle that is to be created by the Union government to throw a lifeline to the stressed NBFCs. “We need to look at the fine-print of the proposal,” Kadle said.
The Union cabinet last week approved the proposal of creating a stressed assets stabilisation fund (SASF) to function as the special purpose vehicle and offer liquidity to large NBFCs that do not take public deposits. Tata Capital does not take public deposits.
To be sure, Tata Capital is not desperately seeking funds as it has a capital base of Rs2,100 crore and holds long-term debts in its book worth another Rs500 crore. But it wants to raise resources as Kadle wants to raise the size of the Rs8,000 crore book that he has built from scratch in past 16 months.
“We need to create alternate channels to raise funds instead of relying only on banking lines of credit. We will try to create a retail bond market,” said Kadle, who believes that retail investors will have faith in them because of the Tata name. “Primary markets for raising funds through equity issues have collapsed and retail investors have lost confidence in the equity markets and the mutual funds. If a trusted name comes into the marketplace there could be a good response,” he said.
Tata Capital is also getting ready to float a few sector-specific funds for its private equity (PE) venture between April and the next 18-24 months. “We are in discussion with a few overseas and domestic investors. They are interested. The market is tough but we will raise funds,” Kadle said.
Meanwhile, using its own balance sheet, the company has already invested about $50 million (Rs244.5 crore) in three firms in air cargo, automobile components and technology ventures but Kadle would not name any of them.
A falling stock market and shrinking valuation has hit the PE space hard even though in terms of deals, there was not much of a difference in the first nine months of 2008.
According to Venture Intelligence, a research service focused on PE and venture capital, PE investments were spread across 330 deals worth $9.7 billion in the January-September period, against $9.5 billion invested across 296 deals in the year-ago period. However, deal activity which slowed in the third quarter, sharply fell in the last quarter ended December, and analysts do not see any reversal of the scene anytime soon. The Sensex, India’s most tracked stock index, lost more than 50% last year.
Kadle, who was a member on the board of Tata Motors Ltd and handled the finance portfolio for the country’s largest automobile company till he was inducted into Tata Capital in September 2007, sees opportunity in both corporate and retail finance and is not afraid of piling bad assets as he is confident of using the “Tata eco-system”. “About 70% of Rs4,000 crore loans given to small and medium enterprises and infrastructure projects are known to Tata group companies,” he said.
He wants to use thousands of outlets of Tata Motors, Tata Chemicals Ltd, Rallis India Ltd and other Tata group firms to distribute the loans.
A pilot project in south India has already started and once this is successful, Kadle wants to use about 8,000 Tata outlets across the country for the purpose. Currently, Tata Capital has only 35 branches in India.
Meanwhile, Tata Sons has sought the Reserve Bank of India’s approval for shifting its credit card business, launched in association with GE Money and State Bank of India, to Tata Capital. Once this is done, Tata Capital will strengthen its presence in the retail segment. It is into auto finance and personal loans and plans to float a subsidiary exclusively for mortgages.
According to Kadle, banks may have cheaper resources and enjoy a 100-200 basis points cost advantage over NBFCs, but Tata Finance can make up some of the disadvantages with its better reach, focused approach and the Tata brand name. One basis point is one-hundredth of a percentage points.
The company has also invested in a stressed assets firm, International Asset Reconstruction Co. Ltd, promoted by HDFC Bank Ltd and City Union Bank Ltd. It will have a 20% stake in the distressed assets firm where HDFC Bank holds a 30% stake.
Kadle made it clear that “as of now” there is no plan to convert Tata Finance into an umbrella firm for the group’s other financial businesses such as insurance and asset management but if the regulator permits, the Tatas will not feel shy of converting the NBFC into a bank. Current norms do not allow Indian companies to float a commercial bank.