Asia Asset Finance Rs. 1 b debenture up for subscription

Asia Asset Finance’s Rs. 1 billion worth listed debenture issue is now open for subscription whilst its official opening is on 12 August.

The company is having an initial issue of five million debentures by way of issuing Secured (Asset Backed), Listed, Redeemable, Rated three-year (2021/2024) and five-year (2021/2026) debentures at a par value of Rs. 100 each, to issue up to a further five million of said Debentures at the discretion of the company in the event of an oversubscription of the initial issue, totalling to Rs. 1 billion.

The funds raised through the debenture issue will be utilised to finance expansion by increasing the

gold loan portfolio of the company within six months from the date of allotment. The company has entered into a mortgage bond dated 26 July 2021 which pledges the entire future gold loan portfolio created henceforth 01 July 2021 in pre-specified branches of the company in favour of the trustee. The pledged receivable from the gold loan contracts shall be the security for the repayment of the principal due and accrued interest to the debenture holders.

As of 31 March, the gold loans monthly average is Rs. 1 billion, up from Rs. 808 million in FY20 and Rs. 154 million in FY19.

The debentures are of four types. ‘Type A’ is a three-year instrument with a fixed coupon rate of 8.76% per annum (Annual Effective Rate of 8.76%) payable annually. The ‘Type B’ is also a three-year instrument with a floating rate of one-year Treasury Bill rate plus 3.32% payable annually. The ‘Type C’ is a five-year debenture with a fixed coupon rate of 9.26% per annum (AER of 9.26%) payable annually. The ‘Type D’ is a five-year instrument with a floating rate of one-year Treasury Bill rate plus 4.15% payable annually.

The debentures are rated ‘[SL]A- (SO) (Stable)’ by ICRA Lanka Ltd.

Secured (Asset Backed), Listed, Redeemable, Rated debentures issued under the prospectus may be redeemed by the company prior to maturity in accordance with Clause 4.3 of the Trust Deed, which provides for the Company to redeem the debentures before maturity subject to the prior written consent of the Central Bank and approval of the holders of 2/3 of the par value of the Debentures outstanding, or in the event of occurrence of an event of default as specified in Clause 11 of the Trust Deed. However, these debentures do not have a “convertible option”. This debenture is collateralised by the receipts of future gold loans created in identified centres. The debentures rank in priority to all other unsecured creditors and the rights of any preference and ordinary shareholders of the company with respect to the proceeds from the enforcement of the Security.

Joint managers to the issue are Capital Alliance Partners Ltd., and First Capital Ltd.

In FY21, net interest income of Asia Asset Finance was Rs. 2.6 billion, down by 14%. Operating profit before VAT on financial services amounted to Rs. 132 million, down by 10% from FY20. Pre-tax declined by 7% to Rs. 86.7 million and after-tax profit dipped sharply by 36% to Rs. 45 million.

As of 31 March, total assets amounted to Rs. 15.3 billion, up by 1.3% and liabilities grew by 1.1% to Rs. 13.1 billion. Muthoot Finance Ltd., owns a 73% stake in Asia Asset Finance.