Heard on the Street: Coal India opens funding opportunity for NBFCs

Coal India’s initial public offering (IPO) has opened a door of opportunity for non-banking finance companies (NBFCs) that indulge in IPO funding.

According to sources, the NBFC attached to a bank that suffers from a lack of sleep and the finance arm of a Mumbai-based broking firm, which has the name of an exotic flower, are pushing their ‘IPO funding’ business to their rich clients in a big way. The firms have created ‘profitable structures’ for savvy investors to borrow and invest in the IPO.

The finance arm of the bank that suffers from a lack of sleep is advising rich investors to apply for about 70,000 shares (worth Rs 1.7 crore) at Rs 245, where the investor would pay a margin amount of Rs 35 lakh and the NBFC would lend the balance Rs 1.35 crore at 13% interest (for 12 days). The NBFC has stated four broad possibilities with respect to allotment and listing.

If Coal India issue gets subscribed five times, the investor would be allotted about 14,000 shares. At 13% interest, the investor would repay about Rs 1.36 crore (about Rs 56,000 being the interest portion). If the investor were to sell his entire share allotment at Rs 300 on listing day, he would make a neat profit of Rs 7.3 lakh after repaying the loan and interest.

Likewise, if the issue lists at about Rs 270, the investor would make a profit of Rs 3 lakh, the NBFC ‘loan plan’ chart said. The finance company is quick to add that if the issue price falls below Rs 245, the investor would suffer losses. Going by the above conditions, if the issue lists at Rs 240, the investor will lose about Rs 1 lakh, the chart added.