NeoGrowth has so far been building the asset book mostly financed through equity (Tier 1 capital) and traditional term loan facilities from large NBFCs and Banks. The business has grown to a level where future growth could be constrained by traditional cap on leverage. The ability to leverage demanded continuous equity infusion in the growth phase. NeoGrowth wanted to feed the build-up without too much additional equity infusion, and hence decided to bring in Tier 2 capital to sustain growth. The Tier 2 capital which is a supplementary backup capital can be brought in either as a long term subordinated debt or via hybrid debt instruments.
NeoGrowth successfully raised subordinated debt of Rs.250 Million from the market by placement of unsecured, rated, non-convertible debentures. This instrument was rated by ICRA and was assigned a rating of BBB(-) Stable which is an investment grade rating. The debentures are redeemable by bullet repayment at the end of 75 months.
Image Raju Shetty Commenting on the Tier 2 capital infusion, the CFO of NeoGrowh, Mr. Ravi Kumar commented that “Raising subordinated debt of Rs.250 Million has enabled NeoGrowth to significantly increase its Capital Adequacy Ratio and further grow the Assets by optimal degree of leveraging. This increased capital adequacy has given enough head room for the company to grow its assets up to Rs.5 Billion, within the existing equity base”.
NeoGrowth started its operations in FY 2013, and provides finance to small and medium sized retailers, who have a good amount of sales volume through credit/debit card transactions, for their working capital needs. The company lends to these retailers against future credit card and debit card sales. Repayment of these loans occurs on a daily basis as a certain fixed percentage of daily sales. NeoGrowth currently operates out of 9 branches. ICRA takes comfort from the well-designed internal controls and risk management system due to robust technological platform of the company. The company undertakes daily monitoring of portfolio through its internal system which enables it to start early follow-up and recovery action in case of any delinquencies.