Gold loan provider Muthoot Finance is expected to raise up to ₹2,000 crore next week through floating-rate bonds (FRB) with a three-year maturity period, according to reports from The Economic Times. The company will issue these bonds linked to the 91-day treasury bill, allowing it to avoid high fixed borrowing costs. The paper will be priced 300 basis points above the 91-day treasury bill, with one basis point representing a hundredth of a percentage point.
The 91-day T-bill has increased 21 basis points to 5.50% this calendar year, while the 10-year benchmark rate has increased 48 basis points to 7.08% as of Wednesday, as reported by The Economic Times. This pricing structure allows issuers to avoid locking in elevated long-term yields while benefiting from the stability of shorter-duration external benchmarks. The competitive pricing of FRBs has made them attractive alternatives to traditional fixed-rate corporate bonds.
Floating-rate bonds are gaining popularity as interest rates are expected to rise, with issuers seeking ways to avoid locking in borrowing costs at elevated levels, according to Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, as reported by The Economic Times. FRBs are priced very competitively, with borrowing costs in some cases even coming in below comparable bank lending rates. The coupon structure is benchmarked to the 91-day T-bill, providing issuers with flexibility in managing interest rate risk during a period of expected rate increases.
Muthoot Finance did not respond to queries by press time, as reported by The Economic Times. The move to floating-rate bonds reflects the broader trend of companies turning to FRBs as fixed-rate corporate bond yields have risen amid expectations of rate hikes. The structure allows issuers to benefit from the stability of shorter-duration benchmarks while maintaining flexibility in managing interest rate exposure during a period of anticipated monetary policy changes.
