Capri Global Capital is set to enter the foreign currency bond market, targeting up to $500 million to diversify its funding sources. The NBFC aims to increase its reliance on capital market borrowings from 20% to 50%. While this opens a new liquidity route, investors will monitor how currency fluctuations and hedging costs might impact future profit margins.
What Happened
Capri Global Capital is preparing to tap the foreign currency debt market for the first time. The company is in the process of launching a US dollar-denominated bond issue, aiming to raise approximately $300 million initially, with the option to expand the total size to $500 million based on investor demand. The company has scheduled investor calls for Tuesday to discuss the terms, and the final pricing is expected to be decided by the end of the week. This move represents a major change in how the company plans to fund its business operations.
The Shift To Offshore Debt
For a long time, the company has relied primarily on domestic borrowing sources, such as loans from banks. Currently, money raised from capital markets—which includes bonds and debentures—makes up about 20% of the company's total borrowings. Under the direction of Managing Director Rajesh Sharma, the company is aiming to push this share significantly higher, targeting 40% to 50% in the coming year. This strategy is designed to diversify funding sources, helping the company reduce its dependence on any single channel for liquidity. The company recently raised ₹5 billion through a domestic public debt issue in April, highlighting its ongoing efforts to utilize the bond market more effectively.
Understanding The Currency Risk
While entering the dollar bond market can help a company access global liquidity at potentially different interest rates, it introduces new risks for Indian NBFCs. The primary challenge is currency fluctuation. If the Indian Rupee weakens against the US Dollar, the cost of repaying the principal and interest in Rupee terms can increase significantly.
To manage this risk, companies typically use hedging—a financial strategy to lock in exchange rates. However, hedging is not free; the cost of these financial contracts can offset the interest rate benefits of borrowing in dollars. Investors will be looking to see if the company can maintain its profit margins while absorbing these costs, especially as it manages a portfolio of assets under management (AUM) worth approximately ₹300 billion.
Why The Market Is Watching
This bond issue is a test of confidence in the company’s ability to manage its balance sheet. Institutional investors will scrutinize the coupon rate—the interest the company pays on these bonds—and the maturity period, which is set for three years and three months. A successful debut could pave the way for regular access to global capital, but the ultimate impact on the company's financials depends on how well it executes its plan to shift its debt profile without inflating its overall cost of borrowing.
What Investors Should Track
Investors may monitor the final pricing of the bonds when announced, as it reflects the market’s view of the company’s credit risk. Another key detail is the net cost of the debt after accounting for hedging expenses. Finally, management commentary regarding their future borrowing strategy and how they plan to balance domestic and international debt will be important for understanding the company’s long-term financial health.