Hero FinCorp First Indian Company to Obtain New Benchmark Loan

Hero FinCorp has become the first Indian company to raise a syndicated loan linked to the secured overnight funding rate (SOFR), people with knowledge of the matter have said.

The non-bank financial company, promoted by Hero MotoCorp, raised $350m (about Rs 2,631 crore) at 168 basis points above SOFR, a new international benchmark that has emerged to replace the London Interbank Offered Rate or LIBOR from January 1.

The Reserve Bank of India had ordered banks, through a circular issued on July 8 last year, to stop underwriting LIBOR contracts from December 31, in line with the global elimination of this rate. reference.

The SOFR rate was 0.05% on Thursday. Axis Bank and HSBC are the underwriters of the loan, the people quoted earlier said. Hero FinCorp and Axis Bank did not respond to ET’s questions until press time. HSBC declined to comment.

Hero FinCorp is expected to use the funds for on-lending purposes.

A syndicated loan differs from a regular loan because it is underwritten by a few banks and then marketed to other banks who bid for parts of the loan. The Hero FinCorp loan has been marketed to 200 international banks. These loans are supposed to provide better validation of a borrower’s credentials in the global banking system.

While Indian companies have raised SOFR-linked overseas loans since the start of the year, Hero FinCorp is the first to raise a syndicated loan marked at the new rate. According to market participants, loans of this nature could become more popular with a wide range of borrowers.

The UK’s Financial Conduct Authority said on March 5 last year that LIBOR would no longer be considered a representative rate from December 31.

Hero FinCorp, which started as a branch of Hero Honda to finance its dealerships three decades ago, has evolved into an independent, non-banking financial company. The company has a loan portfolio of around Rs 20,000 crore, which is evenly split between personal and corporate loan segments.

It had a capital adequacy ratio of 19%, well above prescribed regulatory limits, for the year ending March 2021.

Hero FinCorp reported consolidated revenue of Rs 4,333 crore for 2020-21. It made a net profit of around Rs 50 crore. The company’s housing finance arm, which is a wholly owned subsidiary, posted losses.

Hero MotoCorp and its family of promoters, the Delhi-based Munjals, continue to be the dominant shareholder with a 70-75% stake in Hero FinCorp. Other investors in the company are ChrysCapital, Apis Partners and Credit Suisse as well as dealers from Hero MotoCorp.

The company recently closed an equity financing of approximately Rs 2,000 crore with participation from private equity fund Apollo Global Management. Hero MotoCorp and family members have together contributed around Rs 1,100 crore to this amount. ET had first reported the fundraiser on January 25.


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