Sundaram Finance accepts bids for zero-coupon bonds

What happened

Sundaram Finance accepted bids worth 12.10 billion rupees, or $127.09 million, for zero-coupon bonds maturing in four years, three bankers said. The issue offers an 8.53% yield, bids were invited Friday, and Sundaram Finance did not respond to a Reuters request for comment.

Confirmed

Global impact / market context

The bond sale raises long-term money for Sundaram Finance's lending business without yearly interest payments, which means the company repays investors through the yield at maturity. A successful sale supports its cash available for lending, though the 8.53% yield signals the borrowing cost it must pay.

Analyst inference

The issue carries a AAA rating from Crisil, which means a low risk of default, and it was priced at an 8.53% yield. The deal size includes a greenshoe option, that is an extra amount issuers can sell when demand is strong, showing healthy investor appetite for this debt.

Analyst inference

What to watch

1. The bonds mature in four years and pay no yearly coupon, so investors receive their return through the 8.53% yield at maturity, which means the payout comes as a single amount rather than regular payments. Confirmed
2. Sundaram Finance could use the 12.10 billion rupees raised to expand lending, so watch whether it discloses how the borrowed money is deployed and whether it reports a comment on the issue. Proposed
3. Watch whether Sundaram Finance issues more debt at similar yields; a higher yield would raise its borrowing costs, which are expenses it pays lenders, and could reduce the profit per sale on its loans. Analyst inference

Evidence

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