/Motherson Sumi taps NCDs to bring down interest costs

Motherson Sumi taps NCDs to bring down interest costs

MUMBAI: As more acquisition opportunities open up due to the impact of the Covid-19 pandemic, Motherson Sumi, India’s largest auto-component company, is sprucing up its finances.

It is raising capital from the Indian financial markets to pre-pay existing debt and bring down the cost of borrowing, a top executive said.

The company on Thursday announced that it raised Rs 2,130 crore at a coupon rate of 6.65% through an issue of non-convertible debentures (NCDs). The original issue size was Rs 1,500 crore, but it used the green-shoe option to retain more funds after the issue got oversubscribed.

“This is purely for refinancing (our existing debt). We are not going to increase the leverage, we are just going to replace the leverage to reduce our cost of borrowing,” Motherson Group head of strategy and M&A Kunal Malani said.

Malani said the company benchmarked the Indian capital markets with this issue and would tap into it in the future when it would need capital for acquisitions and other purposes. “Now if there is some need for capital, let’s say an inorganic growth opportunity arises, it becomes a capital pool that you can explore,” he said. “But nothing is planned right now.”

As many as 24 investors subscribed to the NCD issue, which was rated AAA-negative by India Ratings & Research.

The funding cost is 2-3 percentage points cheaper than the debt that will be repaid, the company said. “As an example, this debt will be less than half the cost of our outstanding US-dollar bonds,” Malani said.

Yields on corporate bonds have come down due to cheaper sources of capital being available with banks, after the Reserve Bank of India rolled out a stimulus package in March, experts said. The banking regulator offered banks up to Rs 1 lakh crore at the policy repo rate for a three-year period, to invest in investment-grade corporate bonds.

“Indian rates for the first time have come to a level that is more reasonable than borrowing offshore. Hopefully, we will do many more transactions in this market,” Malani said.

As of the end of June, Motherson Sumi had net standalone debt of Rs 1,460 crore, its financial statements showed. Net consolidated debt was Rs 9,083 crore.

The stock of Motherson Sumi Systems gained 0.58% to close at Rs 112.3 on the BSE on Friday, outperforming the benchmark Sensex that remained almost flat.

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