Proceeds for organic growth
Shriram Transport Finance Co Ltd’s (STFC) re-tap of its U.S. dollar-denominated senior secured notes due 2022 will help diversify its borrowing profile, said S&P Global Ratings on 12 July 2019.
The notes are under STFC’s US$2 billion multi-currency global medium-term note (GMTN) program. “Our ‘BB+’ long-term issue rating on the notes are unaffected,” it said.
STFC intends to add US$250 million to the US$500 million 5.95% notes due October 2022, under the same terms and conditions.
The company plans to use the proceeds for organic growth.
“We equalize the rating on the notes with the long-term issuer credit rating on STFC. The notes are direct and unconditional obligations of the company. They are secured and will rank equally, without any preference, among themselves, and with all other outstanding secured and unsubordinated obligations of the issuer,” said S&P.
“Our ratings on STFC (BB+/Stable/B) are supported by the company’s strong market position as the largest financier of commercial vehicles in India.”
STFC’s reported net interest margin (NIM) was 7.4% for the year ended 31 March 2019 and supports its profitability (reported return on assets of 2.3%) and capital ratios (Tier 1: 15.6%; total: 20.3% as of March 31, 2019).
The company’s NIM has faced some downward pressure in recent quarters due to rising cost of funds.
The growth and profitability of non-bank financial institutions in India has been under pressure in the past nine months as the cycle of easy liquidity and low cost of funds reversed.
STFC has managed funding pressure amid the currently tough operating conditions through a combination of cautious growth and use of alternate funding channels and higher securitization.
STFC’s nonperforming loans have reduced in recent quarters. However, they are still higher than peers’, at 8.3% of total loans as of 31 March 2019.
The company’s assets and liabilities are broadly matched, with positive mismatches in near-term buckets. As of 31 March 2019, the company had about Rs.40 billion of liquid assets in cash and bank balances.
This report does not constitute a rating action, said S&P. fiinews.com
