Mahindra and Mahindra Financial Services, the non-banking arm of the Mahindra group is exploring options to tap the overseas markets to raise at least $460 million through a mix of loans and bonds, Mint reported on Tuesday.
In financial year 2019, the company had raised $200 million through external commercial borrowings and another $160 million are in the process of being gathered through overseas loans, said Ramesh Iyer, vice-chairman and managing director, Mahindra Finance, in an interview.
The lender is also looking to raise another $300 million through offshore bonds and is in the process of obtaining an international credit rating, Iyer added.
“Taking into account Reserve Bank of India’s (RBI) yearly automatic route limit of $750 million, we would be left with a headroom of $590 million in FY20. We raised the $200 million at Libor plus 160 basis points (bps) in FY19 and the upcoming one (of $160 million) is expected to be closer to Libor plus 150bps,” he told Mint.
London Interbank Offered Rate (Libor) is a key global benchmark for interest rates. One basis point equals one-hundredth of a percentage point.
Mahindra Finance is looking to diversify its sources of funds and overseas money will help achieve that objective while also allowing the company to tap into liquidity when money is scarce in the Indian financial system due to various factors including the ongoing NBFC crisis.
In January this year, the RBI simplified ECB norms which allowed all entities eligible for foreign direct investment (FDI) to borrow up to $750 million each year under the automatic route. “All eligible borrowers can raise ECB up to $750 million or equivalent per financial year under auto route," according to the central bank’s 16 January notification.
“When you usually go to the bond market, a benchmark deal as expected by the institutional market is of $300 million. Effectively, one can say that whenever we may want to approach this offshore bond market, we will look to raise at least $300 million," Iyer from Mahindra Finance said, adding that once it secures the rating for the bond, “the investor can come through any route—dollar-denominated, masala, among others—as we will know which market is right and most attractive".
Domestic companies raised $2.65 billion through the automatic route in ECBs in April this year, compared to $2.25 billion in the same month last year, RBI data showed.