L&T Finance, a fully-owned unit of India's engineering and construction major Larsen & Toubro, plans to raise Rs500 crore through an issue of non-convertible debentures (NCDs) this month. The debentures will have a shorter maturity period of three years.

The issue will open on Tuesday and close on 22 February. The bonds will carry an interest of 8.5 per cent per annum, and the company has decided to reserve nearly 15 per cent of the institutional category for individual investors.

In September last year, the company raised Rs1,000 crore. The funds raised through the NCDs would be utilised for lending, investments, repayment of existing high-cost loans and for capital expenditure and working capital requirements, the company said.

"Instead of raising money from a bank or mutual fund, we are using this route. Given the pricing and other alternative investments in the market, the response should be good for us," N Sivaraman, senior vice-president financial services, L&T Finance, said.

The offer will feature two series of secured three-year bonds with a maximum yield of 8.58 per cent, with the first series carrying a coupon rate of 8.40 per cent payable half-yearly and the second option carrying a coupon of 8.50 per cent, payable annually. The issue has been priced on the basis of the company's borrowing costs, which currently stand at a weighted average of around 8.25 per cent.

L&T Finance has a rural borrower base 5,50,000 and has already disbursed Rs500 crore to its rural customers over the current fiscal as of date.