Shriram Finance is pushing out its debt maturities, tapping different currencies and paying tight pricing with a US$1.277bn-equivalent social financing that stands as the largest loan for a private sector non-bank financial company from India.
The frequent borrower is also stretching maturities beyond the three years it has previously favoured in the international loan market.
The new borrowing will help diversify Shriram’s funding sources with tranches in US dollars, United Arab Emirates dirhams and euros spread across US$802m-equivalent in three-year money, US$225m of 3.5-year tenors and US$250m in a five-year bucket.
“Shriram is one of India’s largest NBFCs, so they have need for money as raw material and they do realise that NBFC limits with local banks are becoming a challenge so there is a need to diversify,” said a Mumbai-based loan banker, referring to the Reserve Bank of India’s hike in risk weightings on bank lending to NBFCs by 25 percentage points in November 2023.
That led to a decline in onshore lending to the sector and forced these borrowers to look offshore, as banks in India needed to set aside extra capital to account for new risk weightings of 45%, 55% and 75% for Triple, Double and Single A rated NBFCs, respectively.
While the size of Shriram’s borrowing is large – it eclipses erstwhile mortgage lender Housing Development Finance Corp’s US$1.1bn three-year loan completed in November 2022 – only the US dollar-denominated three-year tranches totalling US$675m of the overall financing are being syndicated.
“I think Shriram realises that Taiwanese liquidity is now more or less drawn since they raised money last year as well, and they know that 3.5 and five-year tenors will not sail through the system,” the Mumbai-based banker said.
Nonetheless, the US$675m portion is still the largest size Shriram has syndicated to date.
Last May, the NBFC closed a US$468m-equivalent three-year social loan that was launched at a US$200m size with an unspecified greenshoe and the option to fund in euros, US dollars and yen, but closed without drawing any yen commitments. Prior to that Shriram had tapped the market for a US$404m three-year social loan in October 2023.
Pricing grinds tighter
Notwithstanding the size and the longer tenors, Shriram is also tightening its cost of borrowing with the three-year tranches offering top-level all-in pricing of 188.64bp based on an interest margin of 165bp over term SOFR. (See India Syndicated loans.)
That is well inside the pricing of the US$468m-equivalent three-year completed last May, which offered a top level all-in of 203.33bp based on a margin of 175bp over term SOFR for US dollar commitments. The October 2023 borrowing paid a top-level all-in of 217bp based on a margin of 200bp over SOFR.
It remains to be seen how many lenders join this time despite the tighter pricing. Shriram has managed to tighten pricing on each deal with the number of banks joining shrinking each time. The May 2024 and October 2023 financings drew a dozen and 16 lenders respectively in syndication.
Indian FI borrowers have dominated the supply of offshore loans from the country, but NBFCs might still find appetite among international lenders as they tend to be lower-rated and offer higher pricing than bank borrowers.
“On the exposure limit issue for Shriram, there is still some room for us, but not too much, as Shriram is a frequent borrower in the market. We still have appetite as the pricing is attractive compared with other Indian FIs,” said a loan banker from a Taiwanese bank.
Shriram has also been an active issuer in the international bond market, raising a US$500m social bond on its most recent visit last September. That followed a US$300m 6.5-year social note in March last year for India Vehicle Finance, a Mauritius-incorporated SPV of Shriram Finance, and a US$750m 3.25-year social bond last January.