Cholamandalam Investment and Finance Co. is looking to raise ₹20 billion via perpetual bonds to strengthen its capital buffer for future credit growth. While the company recently reported strong quarterly profits, investors should note the unique regulatory and repayment risks associated with this specific type of debt instrument.
Cholamandalam Investment and Finance Co. is planning to issue perpetual bonds worth up to ₹20 billion. This move is aimed at bolstering the company's capital base, which is necessary to support its ongoing expansion in the lending market. As a non-banking financial company (NBFC) that has maintained double-digit credit growth, ensuring a stable capital buffer is a strategic priority for the management.
The company’s latest financial results for the quarter ended June 30, 2026, show a 46% year-on-year increase in consolidated net profit, reaching ₹1,656 crore. Additionally, its total Assets Under Management (AUM) grew by 23% to ₹2,54,392 crore during the same period. This strong performance indicates that the lender is seeing consistent demand for credit, which necessitates fresh capital to maintain its growth trajectory.
Perpetual bonds are a unique financial instrument that does not have a fixed maturity date, meaning the principal amount is not necessarily repaid at a specific time. In this case, the notes are expected to be callable by the issuer after a decade. Because they do not have a set end date, they behave differently from standard bonds. From a regulatory perspective, NBFCs are permitted to pause interest payments on these bonds if their capital ratios fall below certain mandatory thresholds, or if they face specific losses. This feature introduces a layer of risk for investors that differs from traditional debt.
The issuance comes at a time when the market for perpetual bonds by non-bank lenders has been relatively quiet, with reports indicating a significant decline in such issuances this year. Market participants often view these instruments with caution due to the regulatory complexities involved. For Cholamandalam, successfully executing this sale would not only provide the required capital but also act as a test of investor appetite for perpetual debt in the current interest rate environment.
Investors may monitor the final terms of the issuance, such as the coupon rate and the specific call dates. Financially, Cholamandalam currently trades at a valuation of over five times its book value, which is a premium compared to some peers in the sector. Additionally, the company's interest coverage ratio—a metric used to measure how easily a company can pay interest on its outstanding debt—remains a point of interest for long-term holders. The company has already received board approval to raise funds via non-convertible debentures up to ₹55,000 crore, showing a broad strategy to tap various funding sources to manage its liabilities and fund its lending operations.