MUMBAI: In the commercial paper market for NBFCs, pedigree counts. Even a cursory glance at the widening spreads in financing costs for the para banks shows that entities with a diverse revenue mix and backed by nationally known promoters are able to raise funds way more cheaply.
Spreads have widened to about 100 basis points on an average from 20 bps a month ago, dealers said. Bajaj Finance, HDFC Ltd, Aditya Bilra Fin, and Tata Capital, for instance, have a more diversified customer base and revenue stream, and they seem to have an edge over peers such as Capital First or Manappuram in raising cash now.
“Entities backed by renowned groups like Birla, Bajaj and the Tatas, which have a relatively positive market perception among investors, will still be able to raise money at a (good) rate,” said Siddharth Chaudhary, senior fund manager – fixed income, Sundaram Mutual Fund. “The fear psychosis can be explained largely by self-fulfilling style prophecies….The pricing differential has widened due to such fears and it can be normalised when banks pitch in.”
Individual NBFCs could not be immediately contacted.
Capital First recently sold three-month maturity commercial papers at 9.55% compared with 8-8.25% it paid about a month ago, dealers said. Muthoot Finance sold two-month CPs at 8.90%, which is about 50-60 basis points higher than what it paid a few weeks ago, market sources said.
Bajaj Finance and Aditya Birla Finance have raised CPs offering 8.40-8.55% with two-three-month maturities. About a month ago, the rates ranged from 7.80 to 8% for both the companies.
“Risk premium is now factoring in fear premium,” said Lakshmi Iyer, CIO-Fixed Income and Head-Products, Kotak Mutual Fund. “There may not be any logic behind such a widening spread, but it is the perception that is driving investors now.”
IIFL Finance sold about Rs 1,000 crore worth of CPs paying 9.60% with three-month maturity, which is about 100-120 basis points higher than the rate it offered a month ago.
Edelweiss group companies have bought back Rs 1,000 crore worth of commercial papers, two people familiar with the matter told ET. The group could not be contacted immediately.
“ECL Finance bought back Rs 800 crore worth of CPs while another group company did the rest,” said one of the sources cited above.
In the past few weeks, IIFL Finance and JM Financial group companies have together bought back around Rs 2,600 crore of commercial papers that would otherwise have matured in the next few weeks, indicating the healthy cash position at the two NBFCs.