L&T Finance, part of Larsen and Toubro group, on Monday said it plans to raise up to Rs 500 crore through an issue of 25 lakh non-convertible debentures (NCDs) by February-end.

Financial Chronicle was the first to report on the proposed issue on February 1, 2010.

According to the company, which raised Rs 1,000 crore in September 2009, the money would be raised to meet the growing demand for loans and to finance the working

capital requirement of the company apart from paying old debts.

“Our business is a major capital guzzler and hence all the money we raised in the past has been absorbed to fund our business growth. The fresh money will also be used for the same,” senior vice-president (financial services) of L&T N Shivaraman said.

The debentures with a maturity period of three years at Rs 1,000 each will be issued to mop up Rs 250 crore. It will have room for 250 more in case of oversubscription. The NCDs will carry an interest rate of 8.40 per cent per annum while the annualised yield will work out to 8.58 per cent, according to the company.

This is lower than the interest rate the company offered in its previous NCD issue of Rs 1,000 crore in September. For bond issues with tenures of five, seven and 10 years, the company was paying an interest of 9.51-10.24 per cent.

The offer will open on February 9 and close on February 22. L&T Finance may look at roping in strategic investors to fund its growth in future, a senior company official said.

“We are in this business for value creation. This is a capital-intensive business and L&T has other investment opportunities also,” said Shivaraman.

He says there may be a time when L&T would find alternative demands for capital more attractive and therefore will look at value unlocking for its shareholders in L&T Finance.

“L&T Finance will then need a partner to augment its capital and fund growth,” Shivaraman said. “At this stage, however, we are happy to contribute capital to the company as L&T itself is generating lots of cash and this business is value creating, so we are encouraging L&T Finance’s business.”