Some Indian non-banking firms looking for funds before the financial year ends are resorting to less frequently used bond structures to entice investors now cautious amid an uncertain and volatile global environment, analysts said.
These companies are now using separately transferable redeemable principal part (STRPP) bonds, where the principal and coupon payments are removed, or stripped, and sold separately to investors who want a fixed income on a particular due date.
This week alone, four companies — REC Ltd, Tata Capital Financial Services Ltd, Muthoot Finance Ltd and IIFL Prime Wealth — have raised around 70 billion rupees (about $849 million) via STRPP bonds.
"Investors demanded STRPP bonds and we, as an issuer, do need to consider their requirements," said Oommen K Mammen, chief financial officer of Muthoot Finance, which has issued such bonds for the first time ever.
Some of these offerings also have a put option, which gives investors the right to demand early repayment of the principal.
"Investors have the option to lock in funds for a particular period of time and if they want to exit, they could exercise the put option or else stay invested for the entire tenor," Mammen said.
While REC raised 10-year funds with a three-year put option, TCFS and Muthoot Finance sold STRPP bonds of less than four-year duration with a put option.
Issuers do not mind selling such notes, analysts say, especially as their need for funds is higher towards the end of the financial year and such offerings do not impact their cash flows while giving investors more choices.
"The major advantage of STRPP bonds for investors is that a single tenor could be traded individually and investors could sell part of the issue which they do not want to hold till maturity while staying invested in another part of the same issue," said Venkatakrishnan Srinivasan, founder and managing partner of debt advisory firm Rockfort Fincap.
For example, if an investor bought three-year and four-year STRPP bonds, they could sell any one of the options, while staying invested in the other.