Mumbai: Companies are looking to raise money from the market by issuing non-convertible debentures (NCDs) guaranteed by banks.
The Tata group was the first to plan such a product and now the Future group is looking to raise Rs500 crore through this route.
People familiar with the development said the company has approached banks, including State Bank of India and Bank of Baroda, to stand guarantor to these debentures. Both retail and institutional investors will be able to subscribe to these once the issue hits the market in June this year, they said on condition of anonymity.
“The activity in the NCD market has picked up because corporate spreads, which have been running at 350-400 basis points over treasury, have narrowed down reasonably well,” said Nilesh Shah, deputy managing director, ICICI Prudential Asset Management Co. Ltd. One basis point is one-hundredth of a percentage point.
These NCDs are being sought by companies that find bank loans expensive and there’s no market appetite for their bonds. Investors are more interested if the bond is guaranteed, and a firm can also raise money at a lower interest rate.
Tata Motors Ltd plans to raise Rs3,750 crore through bank-guaranteed NCDs. It is looking to raise this amount in four tranches of two years, four years, five years and seven years, at differential rates of interest. For a two-year loan of Rs800 crore, it is likely to offer an interest rate of 8%. For a five-year loan of Rs1,400 crore, the coupon rate may be 8.5%.