Muthoot Fincorp :

Covered MLD Opportunity

 Need for structured investments during current times

❑ NBFC crisis has become deeper over last two years with challenges in both individual NBFCs and Credit MFs

❑ Pandemic has created stress to even well managed NBFC with diverse lending segments

❑ Globally, governments have opened liquidity tap and with low/no demand leading to significant crash in
Interest rates. India has been on same boat

❑ Banks have been slow to lend and have not passed on lending rates to shore up their capital base for expected
increase in NPAs

❑ Investors have refocused towards NBFCs with strong parentage and lending against liquid collateral

❑ This has created a short term ‘sweet spot’ for investors to invest in yielding structures with strong credit
ratings and covenants

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 Why Vivriti Capital

Ability to structure solutions across wide range of ratings and yields

Vivriti Capital’s marketplace is today a credible platform for enterprise debt, cutting across business needs,
consumption needs in India. Covers sourcing, underwriting, onboarding & monitoring

Team has demonstrated ability to identify winners in each segment, assess and managing credit
ongoing basis through crises, for over a decade.
Assessed over 1,500 Retail Financial Services firms over the past 12 years, invested in and raised capital
for 250+ firms amounting to over INR 80,000 Cr, with < 0.1% credit loss. Vivriti Capital, constituted as an
NBFC, runs the country’s largest marketplace for enterprise debt, counting over 350 institutional
participants.

Worked with marquee global and domestic investors to raise capital

Offshore – DFIs, multilateral agencies, multinational banks, foundations, family offices, asset managers,
impact funds
Domestic – mutual funds, insurance companies, domestic banks, domestic family offices, corporate
treasuries

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 Covered MLD: A Dual Recourse Fixed Income Instrument

Covered bonds
Originator and
Investors
Covered Bond Issuer
Proceeds

Recourse to Recourse to Covered

Issuer Cover Pool Bond Covered Bond Trustee
Guarantee

Cover Pool

❑ Covered bond is a debt instrument secured by a cover pool of assets/ receivables. If the issuer is solvent, it will
repay its covered bonds in full on its scheduled maturity date. If the issuer is insolvent, the Investors have
recourse to a cover pool of assets that are bankruptcy remote from the Issuer (akin to securitisation transaction)

❑ Investor is protected in event where cover pool assets underperform but issuer does not default & also in cases
where issuer defaults but cover pool assets continue to perform well

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 Global and Indian Context

❑ With a global market of over € 2.6* trillion, Covered Bonds are considered a very safe product (not even a
single default till date globally; even in the aftermath of the sub-prime crisis in 2008-09)

❑ Vivriti Capital has been pioneering efforts to further develop the nascent Covered Bond market in India and
has worked extensively with legal/tax/accounting counsels on the product

❑ On record opinion from Wadia Ghandy on the legal aspects, PwC on the taxation aspects and Deloitte on the
accounting treatment

❑ Over the past year, there have been eight issuances cumulating to around Rs.1,200 cr.; product has seen
participation from diversified investor segments (viz. Mutual Funds, NBFCs, Banks, Family offices, Wealth
investors)

*Source: ECBC Factbook, 2019

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 Why Issue & Buy Covered Bonds

Benefits to Investors Benefits to Issuer

Dual recourse i.e. recourse on covered pool Instrument rating is significantly higher
assets (bankruptcy remote) and unlimited than Issuer’s leading to pricing benefit
resource to the issuer (as financial creditor)
Resilient source of funding; even in 2008-09,
Pool is subject to strict eligibility European Banks were able to tap covered
requirement that ensure asset quality i.e. bond market despite drying up of other
delinquent assets can be periodically sources of wholesale funding
replaced with standard assets keeping Limits their ALM mismatches by extending
quality of pool robust maturity profile of the liabilities
Provides significant credit protection
(despite possibly high correlation between Diversification in funding mix as well as
cover pool assets and Issuer Credit Profile) investor base

Ability to take exposure on entities (due to Can be structured in tax efficient manner for
high ratings) that may otherwise not be investors comfortable with PTCs and also for
possible thereby earning higher yield investors who wish to take direct recourse to
issuer
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 Covered Bond - Superior Debt Instrument

Covered Bonds/MLDs Securitisation Secured Bonds Secured Bonds

Transactions backed by PCE*
Nature of Instrument NCDs/ MLDs PTCs NCDs NCDs
Extent of rating enhancement 3 - 5 notches 3 - 5 notches 1 - 2 notches Issuer Rating
possible (vis-à-vis standalone
rating)
Nature of Cover Pool Assets – Yes Yes No No
Bankruptcy Remote?
Recourse on the Issuer/ Unlimited Limited (to the Unlimited Unlimited
Originator extent of CE
provided)
Replacement of assets to Possible Not Possible Possible Possible
maintain robustness of cover pool
Protection against prepayment/ Possible through No Yes Yes
reinvestment risk structuring
Tax Effective (capital gain as Possible for HNIs if No Possible for HNIs if Possible for HNIs if
opposed to interest income) structured as MLDs structured as MLDs structured as MLDs
*PCE : Partial Credit Enhancement

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 Muthoot Fincorp – Issuer Overview
Background
• Legacy: Muthoot Fincorp
Limited (MFL) is the flagship
company of MPG (Muthoot
Pappchan Group) or
‘Muthoot Blue’ and is an
NBFC-ND-SI. MFL was set up
in 1997 and is engaged in
lending against gold
jewellery. The company also
distributes mutual funds,
and general and life
insurance products, and
operates in the money-
transfer segment.
• MFL had an AUM of Rs.
15,604 Cr and reported net
worth of Rs. 2,954 Cr as on
Mar 2020. PAT for FY20 was
Rs. 219 Cr
Company Ratings:
A/Stable (CRISIL)
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Promoter Credentials and Shareholding Pattern Geographical Spread
• Muthoot Group has created and scaled diversified businesses 20 States/UT
over the past 12 decades. Founded in 1979, Muthoot 3,539 branches
Pappachan Group (MPG) or ‘Muthoot Blue’ has presence
across financial services, automotive, hospitality, alternate
energy, IT, healthcare and precious metals.
• Currently, MPG group runs 4 NBFCs - Muthoot Fincorp
Limited (Gold Loans with AUM of Rs. 15k Cr), Muthoot
Microfin (MFI with AUM of Rs. 4.7k Cr), Muthoot Capital
Services (2-Wheeler with AUM of Rs. 2.6k Cr and Muthoot
Housing - (Affordable Housing with AUM of Rs. 1.5k Cr)
Shareholding Pattern
0.25%
6.98% 0.06%
6.98% Thomas Muthoot
Thomas John Muthoot
6.98%
26.25% Thomas George Muthoot
Preethi John Muthoot
Remy Thomas
26.25% Nina George
26.25%
Muthoot Exim Pvt Ltd
Muthoot Kuries Pvt Ltd
 Muthoot Fincorp MLD - Terms of Issuance

Product Rated Listed Secured Market Linked Non-Convertible Debentures of Muthoot Fincorp Ltd
Instrument Credit CRISIL PP MLD AA+ (CE) stable
Rating
Tenor Legal Maturity Tenor – 26 months (Rating Requirement)
Call Option at the end of 18 months
Issuer to intimate 30 days prior to call option date. Trigger Event in case company fails to exercise
call option. Monthly repayment from principal & interest received from underlying loans
Principal Protection Principal Protected if Call exercised by Issuer, to the extent of Face Value

Payoff/ Returns Price of 7.26% G-Sec 2029 >25% of Initial G-Sec Level; then XIRR of 8.75% else Principal Repayment

Security Issuer Balance Sheet: Unlimited recourse to Issuer balance sheet

Cover Pool Assets: Secured by first charge on 1.15x of principal receivables created (cover pool) in
favour of Debenture Trust
Cash Collateral: FD lien marked in favour of Trustee to the extent of 7% of debenture issuance
amount

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 Muthoot Fincorp MLD - Terms of Issuance (contd.)

Key Cover Pool Criteria o Only Gold Loan receivables to be part of cover pool
o All loans should be standard at the time of assignment
o Thereafter, loans delinquent by less than 30 days should be less than 5% of the pool
o Maximum LTV of gold loans to be 75%
o Maximum state concentration of 30%, top 3 states not to constitute > 50%
o Maximum district concentration capped at 5%
o Maximum loan ticket size of Rs.10 lacs
Other Trigger Events o Rating downgrade of issuer to BBB+ or below by any rating agency
o Rating downgrade of NCD to AA- or below
o Capital Adequacy falls below 18% and/ or Gross NPA becomes more than 5%
o Issuer has defaulted in any financial indebtedness
o Other standard event of default conditions
Consequences o Trust Guarantee is invoked and all collections from assigned loans will be transferred to specific
account controlled by Trust for onward distribution
o Step up yield to 400 above indicated XIRR
o FD to be encashed and utilised towards payment to Investors
o Debenture Trustee approval shall be required for the Issuer to declare any dividends or make any
other distributions to the holders of common equity
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 THANK YOU
WWW.VIVRITICAPITAL.COM

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