Northern Arc Capital, a leading debt platform for non-banking finance companies, has structured and co-invested in a Rs 106-crore pooled bond issue with Spanish impact investment fund Magallanes Impacto, for four NBFCs that focus on financial inclusion in various sectors.
The pooled bond was issued by ASA International India, a microfinance firm; Aye Finance, which finances SMEs; Kanakadurga Finance Ltd, a commercial vehicle finance firm; and, Thirumeni Finance, which lends to affordable private schools. These companies will use the debt to lend to support income generating activities by small and mid-sized businesses in India, and to expand and improve access to education.
According to a release from Northern Arc Capital, this is the first debt transaction in India for both GAWA and Magallanes Impacto. The pooled bond issuance will give the investors exposure to the NBFCs that are focussed on financial inclusion.
Describing it as a landmark deal, Kshama Fernandes, Chief Executive Officer, Northern Arc Capital, told BusinessLine that the deal was significant because it comes at a time when NBFCs, particularly the smaller ones, are finding it difficult to raise funds in the market. The pooled bond structure is backed by a partial guarantee, enhancing the credit rating for the loans and lowering the cost of borrowing. The interest rates vary from 11 per cent to 14 per cent.
Magallanes Impacto, which is advised and managed by GAWA Capital Partners, was not keen on investing in multiple entities and was looking at a single deal, making it necessary to go in for a pooled bond issue. Northern Arc Capital has provided the common guarantee for Magallanes.
GAWA Capital advises three impact investing funds, including Magallanes Impacto, that invest in financial inclusion and MSME financing. It has investments in countries such as Chile, Columbia, Peru and India. While it has made equity investments in a few leading microfinance and MSME companies in India, this is its first debt investment in the sub-continent.