Muthoot Finance NCD Issue: March 2 2012 – March 17 2012

by Manshu on March 4, 2012

in Fixed Deposits

Muthoot Finance, which is the largest gold loan financing company in India, and has come up with two debt issues this fiscal has come up with another NCD issue which opened on March 02 2012 and will close on March 17th 2012.

In their last NCD issue, Muthoot offered an interest rate of upwards of 13% and created a lot of excitement in the market, and the terms of this issue are exactly the same as the terms of the last issue.

This issue is for a total size of Rs. 500 crores and the bonds will be issued in dematerialized form only. The issue has been rated ICRA AA-/Stable by ICRA and CRISIL AA-/Stable by CRISIL.

Here are the other details of this issue.

Muthoot Finance NCD March 2 2012 to March 17 2012

Muthoot Finance NCD March 2 2012 to March 17 2012

Muthoot has been classified as a systematically important NBFC by RBI, is a huge company with gold loans under management worth Rs. 207 billion and has a capital adequacy ratio of 18%. The promoters hold a little more than 80% of its shares and all these are positive factors that go in favor of the company.

In my post about the last Muthoot NCD issue I had written that that you shouldn’t have a lot of your portfolio exposed to either this issue or any other like this. The company is doing well currently but that doesn’t mean it will always do well and you don’t want to end up in a situation where you find that you lost a lot of money for a few extra percentage points in a debt issue.

I would say the same thing here, and if anything, I’ve become more wary of investing money here because of the frequency and timing of the issue. When everyone expects interest rates to come down in a few months, why not wait to come out with a debt issue then?

Gold prices have also ended their one way march up and haven’t moved anywhere in the past 6 months and that doesn’t bode too well for a gold loan company either.

If you want to benefit from the high interest rates currently prevailing then you could take a small exposure in this issue but if you already own these bonds then it’s best to avoid them and look at other things that offer more safety albeit at a lower rate.

{ 27 comments… read them below or add one }

Jitendra P.S.Solanki March 4, 2012 at 11:30 pm

Hi Manshu,

The company needs money to disburse more gold loans and that’s why they are raising so much money.This business itself creates doubts in my mind of long term sustainability.


Shiv Kukreja March 5, 2012 at 12:59 am

Hi Manshu

I completely agree with your view “When everyone expects interest rates to come down in a few months, why not wait to come out with a debt issue then?”


chand March 26, 2012 at 12:06 am

… The same reason banks don’t stop giving fixed deposits just because interest rate may come down in few months!


Manshu March 26, 2012 at 12:26 am

Let’s keep all our fixed deposits with Muthoot then πŸ™‚


jitendra March 26, 2012 at 12:58 am

Dear Manshu,
till date I haven’t bought the NCD of any company, Please guide me whether I should go for these NCDs. Please explain the risk associated with this product.


chand March 26, 2012 at 1:29 am

Nah, I would rather buy 2 year FMPs and intermediate term bond funds at this moment.

Anyway, the point I was trying to make was that if muthoot is giving you 13% yield thats because they charge high interest rate on the loans (upto 26%!). After 3 months if the interest rate eases then new NCDs will have lesser yields and probably lesser cost of gold loan borrowing. The same thing that bank does. And I am not making absolutely no comment about quality of the bonds or the company.


Manshu March 26, 2012 at 2:41 am

I appreciate what you’re trying to say but comparing a bank to a gold loan company? πŸ™‚


chand March 26, 2012 at 6:51 am

Just basic economics πŸ™‚ I lend you money at 10% you in turn lend it to somebody at 15%. Does not matter whether you are a banker or a local pawn shop owner.

BTW, their CAR is better than SBI πŸ˜‰


Manshu March 26, 2012 at 8:20 am

This is so simple – I wonder why all of us aren’t lending money on gold πŸ™‚


chand March 26, 2012 at 8:27 am

… or car … or trucks … or house … or land … or shares … or first born child. Opportunities are limitless as long as there are “collaterals”.


Manshu March 26, 2012 at 8:34 am

Yup, just raise money from public, take collateral and lend it out at a higher interest. Genius!


chand March 26, 2012 at 9:15 am

πŸ˜€ and that’s how banking system works, isn’t it?

Sahil March 30, 2012 at 4:30 pm

i agree with chand. don’t worry too much about these gold companies. enjoy high rate for 2 year option. exposure limit, in my humble opinion, should be upto 35pc

Lekhraj March 19, 2012 at 11:33 am

Can you please tell me the code to see the current market price of the last issue as well for the current issue also, if listed on BSE/NSE?



Shiv Kukreja March 26, 2012 at 12:36 am
DIPANKAR DAS April 9, 2012 at 3:18 pm

i have allready invest in M. FINANCE NCD.which closed 17march2012, when i wll found it my D-MAT,


ankurm83 June 11, 2012 at 4:11 pm

Hey could you through some light as to how are Cumulative NCDs (like Muthoot and IDFC-80CCF) are taxed at maturity or annually on accrual basis?. Taxed as interest income or capital gains in that case?


Manshu June 12, 2012 at 5:13 pm

That’s a gray area as far as I know. CAs have told me and there are a lot of comments from CAs here as well that both ways are correct. I haven’t checked with anyone for a while to see if there is clarity on it or not if I find something definitive I’ll post it here.


ankm83 June 12, 2012 at 5:43 pm

Thanks πŸ™‚


ankm83 June 12, 2012 at 6:09 pm

If taxed on maturity, it would be great due to tax deferal and compounding on a pre-tax basis. What i understood it attracts capital gains if sold prior to maturity and if redeemed upon maturity it will attract tax on interest income. My confusion, was that interest be taxed in 1 shot on maturity or every year. I even posted a question to Livemint (Mint money) on this, no response πŸ™


Manshu April 2, 2012 at 4:01 am

35% seem a bit high to me but to each his own πŸ™‚


Manshu April 2, 2012 at 4:19 am

Was just browsing the RBI website for something else and noticed that they had a press release out on Muthoot Fincorp Limited with this data:

It has come to the notice of Reserve Bank of India that a partnership firm with the name of Muthoot Estate Investments in which the promoters of Muthoot Fincorp Ltd are partners has collected and has been collecting deposits in the form of fixed deposits, cumulative deposits and special public deposits from the public. These deposits are collected through the branches of Muthoot Fincorp Ltd located at different places in Kerala.
In terms of Section 45-S of the RBI Act, acceptance of deposits from the public by Muthoot Estate Investments, which is a partnership firm, is prohibited. Members of the public are hereby cautioned to note that acceptance of deposits by the company or Muthoot Estate Investments is punishable with imprisonment and those who deposit money with the company or Muthoot Estate Investments may do so at their own risk.
Reserve Bank of India has also directed Muthoot Fincorp Ltd to stop allowing the use of its premises/branches or officials, in any manner by Muthoot Estate Investments for accepting deposits from public.

Just thought you’d like to know.


Hemant Beniwal April 5, 2012 at 2:10 pm

Hi Manshu,
Can you share source of this – you can mail me.


Manshu April 5, 2012 at 6:52 pm

Pasting the link here so that others who are interested can view the source as well.


chand April 9, 2012 at 3:03 am

Muthoot Finance Ltd (that issued the NCDs in your article) and Muthoot Fincorp Ltd are two different companies.


Manshu April 9, 2012 at 3:30 am

My mistake! I apologize!


chand April 9, 2012 at 9:41 am

No need to, even I did not know that Muthoots have pulled off an Ambani some time back.


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