 Will exit Mahindra Satyam at opportune time: L&TPublished on Mon, Aug 10, 2009 at 11:30 | Source : CNBC-TV18 Updated at Mon, Aug 10, 2009 at 16:47 134193 Investors following Larsen. Share this News with them.
Larsen & Toubro Finance is set to raise Rs 500 crore via 5 million secured, redeemable and non-convertible debentures (NCDs) with a face value of Rs 1000. The NCDs will be listed on the National Stock Exchange (NSE). Commenting on the development, YM Deosthalee, Wholetime Director and CFO, L&T, said that the NCDs would provide good returns over the long term. There was demand for high-yield instruments today, he added, adding that the NCD coupon rate would be higher than banks' 7.5-8%. Deosthalee said that there was no decision on Mahindra Satyam stake sale yet as it was less strategic now. The company would exit Mahindra Satyam at an opportune time and that it was now a portfolio investment, he said. Deosthalee also said that there was some pick-up in order booking and that he expected a 25% increase in order flows. Here is a verbatim transcript of the exclusive interview with YM Deosthalee on CNBC-TV18. Also watch the accompanying video. Q: Take us through why non-convertible debentures (NCDs) could be considered an attractive instrument for a retail investor compared with other fixed income offerings? A: From an investor perspective, it provides in reasonably good return in a long tenure instrument. We are talking about 5-7 and 10 year. So first, it makes sense for him to lock-in at reasonably high rates. Secondly, it provides some liquidity also because these instruments have been listed and if one wants to get out, one can get out anytime. The third point is that there is demand for high yield instrument, I am not saying, particularly, very high yield but reasonably priced instruments today. We have seen that in the recent past people are willing to invest at reasonable rates, at good yields. So that's why it's a good market to tap. The last point is from an issuer perspective it makes a lot of sense because these non-banking financial banking companies (NBFC), today, are largely dependent on banks funding and mutual funds funding. So for them this opens another avenue for raising resources and this is just the beginning in the sense that it's not that it is not that this is the only issuance which they are going to make. So one can came out with a series of instruments and a series of issuances from time to time. So it's a win-win for both investors as well as issuers. Q: L&T is a very trusted name but could you tell us about the kind of credit risks which are attached to such kind of issuances because when retail investors look at banks and put money in FDs, they almost take it for certain that that money is going to come back, it has zero credit risk in their eyes, particularly, for public sector banks, is that true of private sector entities as well? A: L&T is a triple-AAA rated corporate and there is no doubt that it is a highly respectable and trusted name. There is no question about that. In the history of L&T in the last seventy years, there has not been a single case of default of any kind. L&T Finance, which is a subsidiary of L&T, is also equally trusted because we used to take fixed deposits earlier and when we stopped that scheme, there were a lot of queries from the depositors as to why are they stopping. We want to put in lot of money with your company. So there were a lot of queries but somehow because of the administrative reasons we decided to stop. The other important point is L&T Finance is a AA+ rated company and one important point is that in the history of L&T Finance of last fourteen years, it has never been downgraded. Only thing is that from time to time it has been upgraded and there has been not a single downgrading so far. The other thing is that this name also is an extremely trusted name because we don't work in all the areas, we work in few areas and in all the areas, the customers trust this entity very well. For example, we have recently started Microfinance business in L&T Finance and in just about one year's time, we have more than 200,000 customers. I think there has not been a single case of default on the customer's point of view and the most important point is L&T Finance has also not defaulted on its commitment--the date of disbursement, the date on which we are going to disburse money back, the money is available to the customer. Same is the case with construction equipment, tractor financing, in all the areas there is an assurance to the customer that money will be available, and it is a very transparent as well as extremely ethical organization. In financial services business that is very important. I do believe that it is also an equally trusted name, although rating wise it is a notch below L&T's rating but I think that is because it is in financial services business. Q: How attractive would you need to make this offering for investors? Would you be in a position? I know that you had not offered a coupon rate yet which you will in the next week's time but would you need to offer for example 150 bps or even 200 bps points more than what public sector banks are offering on their fix deposits (FD) today? A: It will be definitely higher than what public sector banks offer in terms of deposits but it may not necessarily be extraordinarily expensive because ultimately we are trying to optimise the cost of raising resources for L&T Finance. So if banks today offer 7.5-8%, I guess it is going to be higher than that. How much higher that will be decided just three-four days before the issuance. But more than the coupon it is actually the safety of the money which is more important. Safety and liquidity and both the factors are there in our offering, of course, I am saying that it will be attractive from the point of view of coupon but it need not necessarily be extraordinarily expensive because today investors are looking at security, safety as well as liquidity. Q: The magic number is the double digit because nowadays we live in an era of single digit numbers. Do you think you can cross that threshold into 10%? A: As soon as we finalise the coupon, you will be the first person to know and we will announce it shortly just before the issuance. The reason why we are not announcing the coupon today is, you are aware and you are an expert on this subject, you know how volatile is the market today and I think it is true if you announce the coupon in a very premature manner too early, things can change just before the issuance. So it is important for us to make sure that we take note of the happenings in the market and accordingly price the bond. Continued on next page...
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