big investors look to strike gold with manappuram

BIG INVESTORS LOOK TO STRIKE GOLD WITH MANAPPURAM Manappuram General Finance & Leasing Ltd. Prices|Financials|Company info|Reports MUMBAI: A clutch of global and local investors such as Nomura Capital, Sloane Robinson, IDFC, Capital World, Wellington and SBI Caps are in talks to pick up a stake close to 10% for Rs 1,000 crore in Kerala-based Manappuram General Finance & Leasing, a non-banking finance company that lends against gold jewellery. The shares are likely to be placed at a 25-30% premium to the current market price of Rs 131 and would value the firm at Rs 7,000-7,500 crore, said a person familiar with the details of the proposed transaction. The deal is expected to close in the next few weeks. The company had raised close to Rs 240 crore from some of these investors in May this year. Nandakumar VP, executive chairman of Manappuram General Finance, declined to comment on the proposed Qualified Institutional Placement, or QIP. However, a senior company official, on condition of anonymity, said that the company has received a commitment from investors. The fund-raising comes against the backdrop of a growing loan book and will help the company comply with a regulatory norm which stipulates that it set aside Rs 15 on every outstanding loan of Rs 100. Manappuram¶s gold holdings have gone up from 20 tonne to 35 tonne in the financial year to date and Mr Nandakumar expects this to rise as the NBFC¶s target group, comprising the salaried middle-class and SME entrepreneurs, are made aware of the cheaper cost of funds under the scheme. ³Many individuals from our target group take recourse to unorganised money lenders who could charge interest rates anywhere from 5% to 15% per month. Against this, we charge around 7-12%, which also work out cheaper compared to personal loan rates of 18- 24% charged by banks,´ said Mr Nandakumar. Unlike other loan EMIs, in which the borrower has to also service the principal portion of the loan, in loans against gold, borrowers have the flexibility to roll over the loan for a period of their choice by servicing only the interest component. This is purely because the collateral value does not depreciate over time. NBFCs such as Manappuram also claim that loans against gold can be disbursed as quickly as five minutes. The average ticket size of the loans is Rs 25,000 and the average loan life is three months. NBFCs such as Manappuram are funded by banks on the basis of book debt in specific branches, which is given as security to banks. Banks also have a lien on the gold held in the branches. Manappuram estimates the size of private gold holdings by Indian households to be around 20,000 tonne, of which only 10% has been energised as gold loans, leaving a huge untapped potential.

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Page 1: Big Investors Look to Strike Gold With Manappuram

8/8/2019 Big Investors Look to Strike Gold With Manappuram

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BIG INVESTORS LOOK TO STRIKE GOLD WITH MANAPPURAM

Manappuram General Finance & Leasing Ltd.Prices|Financials|Company info|Reports MUMBAI: A clutch of global and local investors such as Nomura Capital, Sloane Robinson, IDFC, Capital World,Wellington and SBI Caps are in talks to pick up a stake close to 10% for Rs 1,000 crore in Kerala-basedManappuram General Finance & Leasing, a non-banking finance company that lends against gold jewellery.

The shares are likely to be placed at a 25-30% premium to the current market price of Rs 131 and would value thefirm at Rs 7,000-7,500 crore, said a person familiar with the details of the proposed transaction. The deal is expectedto close in the next few weeks. The company had raised close to Rs 240 crore from some of these investors in Maythis year.

Nandakumar VP, executive chairman of Manappuram General Finance, declined to comment on the proposedQualified Institutional Placement, or QIP. However, a senior company official, on condition of anonymity, said that thecompany has received a commitment from investors. The fund-raising comes against the backdrop of a growing loanbook and will help the company comply with a regulatory norm which stipulates that it set aside Rs 15 on everyoutstanding loan of Rs 100.

Manappuram¶s gold holdings have gone up from 20 tonne to 35 tonne in the financial year to date and Mr Nandakumar expects this to rise as the NBFC¶s target group, comprising the salaried middle-class and SMEentrepreneurs, are made aware of the cheaper cost of funds under the scheme. ³Many individuals from our targetgroup take recourse to unorganised money lenders who could charge interest rates anywhere from 5% to 15% per month. Against this, we charge around 7-12%, which also work out cheaper compared to personal loan rates of 18-24% charged by banks,´ said Mr Nandakumar.

Unlike other loan EMIs, in which the borrower has to also service the principal portion of the loan, in loans againstgold, borrowers have the flexibility to roll over the loan for a period of their choice by servicing only the interestcomponent. This is purely because the collateral value does not depreciate over time. NBFCs such as Manappuramalso claim that loans against gold can be disbursed as quickly as five minutes. The average ticket size of the loans isRs 25,000 and the average loan life is three months.

NBFCs such as Manappuram are funded by banks on the basis of book debt in specific branches, which is given assecurity to banks. Banks also have a lien on the gold held in the branches.

Manappuram estimates the size of private gold holdings by Indian households to be around 20,000 tonne, of whichonly 10% has been energised as gold loans, leaving a huge untapped potential.