U GRO Capital to Issue USD 20 Million Foreign Bonds, Plans India INX Listing

BANKINGFINANCE
Whalesbook Corporate News Logo
AuthorIshaan Verma|Published at:
U GRO Capital to Issue USD 20 Million Foreign Bonds, Plans India INX Listing
Overview

U GRO Capital's board committee has approved the allotment of up to USD 20 million in senior, secured, listed foreign currency bonds. The 48-month debt, secured by book debts, will be listed on India International Exchange IFSC. This move aims to bolster capital and diversify funding sources as the NBFC continues its MSME lending operations.

U GRO Capital Boosts Capital with USD 20 Million Foreign Bond Issuance

Reader Takeaway: Capital bolstered by USD bonds; variable rates & past accounting issues pose watchpoints.

What just happened (today’s filing)

U GRO Capital's Board Investment and Borrowing Committee has greenlit the issuance of up to USD 20 million (approximately ₹166 crore) in senior, secured, listed foreign currency bonds.

The bonds carry a tenure of 48 months, maturing on March 27, 2030. They are secured by a first-ranking exclusive charge over identified book debts, up to 110% of the outstanding principal and interest.

The issuance will be conducted via private placement and is proposed to be listed on the India International Exchange IFSC Limited (India INX), providing potential for secondary market liquidity.

Why this matters

This move allows U GRO Capital to access foreign currency denominated debt, diversifying its funding sources beyond Indian Rupees. Such diversification can be crucial for an NBFC (Non-Banking Financial Company) operating in the MSME (Micro, Small, and Medium Enterprises) lending space.

The capital infusion is expected to support the company's ongoing growth initiatives and enhance its ability to serve the credit needs of MSMEs, a segment historically facing a significant funding gap.

The backstory (grounded)

U GRO Capital operates as a DataTech NBFC, focusing on addressing India's substantial MSME credit gap through technology-driven underwriting and sector specialization.

The company has a consistent track record of capital raising, including recent equity issuances in Q1 FY24 and May 2024, alongside past NCDs and CCDs to bolster its balance sheet.

It has also pursued strategic growth through acquisitions like Profectus Capital and formed co-lending partnerships to expand its reach and operational efficiency.

Key changes and what to note

  • Enhanced Capital Base: The USD 20 million issuance directly increases the company's available capital.
  • Foreign Currency Access: Provides U GRO Capital with USD-denominated funding, potentially matching any foreign currency assets or hedging needs.
  • Diversified Funding: Reduces reliance on a single currency or domestic debt market.
  • Liquidity Potential: Listing on India INX could offer better liquidity for the bondholders.
  • Strengthened Lending Capacity: Additional capital can support higher disbursement volumes to MSME clients.

Risks to watch

A key risk is the variable interest rate, tied to Term SOFR plus a 300 basis point spread, meaning borrowing costs will fluctuate with global market conditions. The bonds are secured by a first-ranking charge on identified book debts. Repayment therefore hinges on the collectability and performance of these assets.

Additionally, a US SEC filing revealed that UGRO Capital's audited financial statements for FY2022 and FY2023, along with interim statements for 2022-2023 and Q1 2024, needed restatement due to accounting errors. Investor advisory firms have also raised concerns about the structure of past fundraising, pointing to scrutiny over capital allocation.

Peer comparison

Like U GRO Capital, many established Indian NBFCs, including peers such as Bajaj Finance, HDB Financial Services, Tata Capital, and Cholamandalam Investment & Finance, regularly tap into domestic and international debt markets to raise capital. This practice is essential for funding their extensive lending operations and growth strategies.

What to track next

  • Successful Listing: Monitor the bond's listing and trading on the India International Exchange IFSC Limited.
  • Fund Utilization: Track how the USD 20 million capital is deployed in the business, particularly in MSME lending.
  • Asset Quality: Keep an eye on the performance and collectability of the book debts used as security for the bonds.
  • Interest Rate Movements: Observe Term SOFR trends and their impact on the bond's coupon payments.
  • Future Capital Raises: Watch for further announcements on debt or equity fundraising activities as U GRO Capital continues its growth trajectory.
  • Financial Reporting Clarity: Continued focus on the accuracy and transparency of financial reporting following past restatement disclosures.
Disclaimer:This content is for informational purposes only and does not constitute financial or investment advice. Readers should consult a SEBI-registered advisor before making decisions. Investments are subject to market risks, and past performance does not guarantee future results. The publisher and authors are not liable for any losses. Accuracy and completeness are not guaranteed, and views expressed may not reflect the publication’s editorial stance.