This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]
Edelweiss Financial Services’ subsidiary, ECL Finance Limited, came out with its first NCD issue in January this year and the issue got oversubscribed on the 2nd day itself. The company then decided to close the issue on the 3rd day due to such oversubscription. Boosted by such a good response, the company is all set to launch its second public issue of unsecured, redeemable, non-convertible debentures (NCDs) from June 17th i.e. the coming Tuesday.
Size & Objective of the Issue – The company plans to raise Rs. 400 crore from this issue, including the green shoe option of Rs. 200 crore. The company plans to use the proceeds for various financing activities, including lending and investments, to repay its existing loans, for capital expenditures and other working capital requirements.
Credit Rating of the Issue – Two rating agencies, CARE and Brickwork Ratings, have rated this issue as ‘AA’ with a ‘Stable’ outlook. As mentioned above, these NCDs will be unsecured, unlike those offered during the first issue.
Coupon Rate & Tenor of the Issue – Last time, there were two tenor options – 36 months and 60 months. This time the company has decided to issue its NCDs for a duration of 70 months and that is the only tenor option. The company has decided to offer 12% per annum rate of interest, payable monthly, annually or on a cumulative basis at the end of 70 months.
ECL Finance vs. Muthoot NCDs –Muthoot NCDs issue is also open for subscription right now and it is scheduled to close on June 26. As you can check from the table above, Muthoot is offering relatively lower rate of interest. For a period of 60 months, Muthoot is offering 11% p.a. payable monthly, whereas ECL is going to pay 12% p.a. for 70 months payable monthly or annually. Muthoot is offering 0.50% extra if you opt for its annual interest payment option.
Also, ECL is offering to more than double your money in 70 months’ time, whereas Muthoot will return exactly the double of your investment in 75 months’ time.
Apart from being the issues of two different companies with different business models, ECL Finance NCDs are unsecured, whereas Muthoot Finance NCDs are secured, except the last option of 75 months.
Minimum Investment – If you want to apply for these NCDs, you need to invest a minimum of Rs. 10,000 i.e. at least 10 NCDs worth Rs. 1,000 each and in multiples of 1 NCD thereafter.
No Additional Benefit to Edelweiss Shareholders – In the last issue, Edelweiss shareholders were entitled to an additional coupon of 0.25% p.a. over and above the base coupon rates. No such special benefit has been granted to the shareholders this time around.
Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and each category will have the below mentioned percentage fixed in the allotment:
Category I – Institutional Investors – 30% of the issue is reserved
Category II – Non-Institutional Investors – 20% of the issue is reserved
Category III – Individual & HUF Investors – 50% of the issue is reserved
NCDs will be allotted on a first come first served basis.
NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.
Demat & TDS – Demat account is not mandatory to invest in these bonds as the investors have the option to apply these NCDs in physical form as well. Also, though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS.
Listing, Premature Withdrawal & Put/Call Option – These NCDs will get listed on both the national exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The investors can always sell these bonds on the exchanges anytime they want, but there is no put option with the investors to redeem these bonds before the maturity period gets over. The listing will take place within 12 working days after the issue gets closed.
Financials of ECL Finance
I covered the profile of ECL Finance while posting its first issue in January, so I don’t think there is a need to do it again. Rather I would like to cover its updated share of financials and product line here.
(Note: Figures are in Rs. Crore)
As you can check from the table above, the revenues of the company grew by 25% last year from Rs. 650.64 crore to Rs. 812.28 crore. Profit after tax (PAT) also rose 32% from Rs. 121.17 crore to Rs. 160.04 crore. This clearly shows that the company is on a growth path despite challenges in the economic environment.
As the loan book witnessed a satisfactory growth of 27%, gross and net NPAs of the company also jumped to 1.24% (0.52% earlier) and 0.35% (0.16% earlier) respectively. Capital Adequacy Ratio (CAR) also declined to 16.06% from 18.40% in the previous financial year, but it is still above the RBI’s stipulated minimum requirement of 15%.
Performance of its Listed NCDs of Last Issue
With a falling interest rate scenario and analysing the price performance of its NCDs of last issue, it seems to me that this issue also is fairly valued at 12% p.a. rate of interest. The only issue I have is that these NCDs are unsecured in nature. But, again I think the risk is fairly compensated with 12% p.a. rate of interest.
Application Form of ECL Finance NCDs
Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in ECL Finance NCDs, an investor can reach us at +919811797407
Hi,
As per the prospectus, the tenure of ECL Finance is 70 Months. So if the Date of Allotment is 26 June 2014, the redemption/maturity date should be 26 April 2020. But in the listing notice to NSE here:
http://www.nseindia.com/content/circulars/CML27032.zip
the Redemption date is mentioned as 14 May 2020. Has something changed after the initial prospectus? Kindly help me on this?
Thanks, Mohan.
Hi Mohan,
Even I noticed the same discrepancy while searching for the listing info and I think the maturity date should be April 26, 2020. It is April 26, 2020 in the notice filed with the BSE, so I also mentioned it to be April 26.
But, I don’t know why they have mentioned it to be May 14, 2020 while filing it with the NSE. I think the certificates or the allotment advice would have the correct maturity date.
Hi Shiv,
What’s your view on Shriram Transport NCD that’s opening tomorrow?
Thanks,
DPP
Hi DPP,
I’ve just posted the article on Shriram Transport Finance NCDs issue, please check.
http://www.onemint.com/2014/07/01/shriram-transport-finance-11-50-ncds-july-2014-issue/
dear mr shiv.
these NCD listing / trading at 1-2 % discount on Allotment price ..
do you know any reason should be add more quantity from market at these rates ? or wait to see if any problem with company .
Dear Dr. Agarwal,
High supply & low demand on the first day is the only reason for the prices to be down. It always happens. It should move between Rs. 980 to Rs. 1000 for a few days at least.
ECL Finance 12% NCDs to get listed on both the exchanges tomorrow i.e. July 1st
Here are the BSE and NSE codes for the same:
Series I – 12% interest, payable monthly – BSE Code – 935088; NSE Code – N5
Series II – 12% interest, payable annually – BSE Code – 935090; NSE Code – N6
Series III – 12% interest, payable on maturity – BSE Code – 935092; NSE Code – N7
Deemed date of allotment has been fixed as June 26, 2014. These NCDs will get matured after 70 months on April 26, 2020.
Interest will be paid on August 1st every year under the annual interest payment option and on 1st of every month under the monthly interest payment option.
I applied for this NCD on the first day itself through ICICI direct ..however so far it is not reflecting in my portfolio.
how long it takes to allot the NCD to the account?
Do you know when it is going to be on NSE/BSE for trading?
Thanks
Yogesh
Hi Yogesh,
It must be getting reflected in your demat account now and these NCDs will start getting traded on the stock exchanges from tomorrow.
stfc opening on 2nd july………………….huge issue………..3000 cr………………will wait for your opinion before investing.
Yes, I’ll try to post it by Sunday evening.
allotment received,full in retail category…………..
Great, thanks for sharing the allotment info !!
Hi Shiv,
Great post… as always. Keep us informed of the listing.
Thanks.
Thanks AB !! I’ll update the listing info here as & when I get any.
ECL Finance NCD issue got closed today i.e. June 19, 2014.
Day 3 (June 19) subscription figures:
Category I – Rs. 205.02 crore as against Rs. 120 crore reserved
Category II – Rs. 96.96 crore as against Rs. 80 crore reserved
Category III – Rs. 147.57 crore as against Rs. 200 crore reserved
Total Subscription – Rs. 449.55 crore as against total issue size of Rs. 400 crore
Hi Shiv,
Do you know when Religare NCDs are coming?
Thanks,
DPP
Hi DPP,
It was supposed to open sometime this month, but I think they have postponed it indefinitely. Shriram Transport Finance NCD issue is likely to open in the first week of July.
One point from your earlier article which you seem to have missed.. Post tax returns for the highest tax bracket may not be attractive.
How does this compare against a AA rated tax free in the secondary market.. Or for that matter post tax free returns for a 3 year fmp (max available right now I think) with a growth option.
Another oddity is that the effective yield for a monthly coupon is higher than the annual coupon (and equal to the cumulative option ). In such a case, is the monthly coupon preferable ?
The effective yield (actually irr) will be lower because taxes will have to be paid every year on the interest thru the IT return.. regardless of accrued or received.
For an investor in the highest tax bracket, obviously these NCDs are not worthy investment vis-a-vis tax-free bonds or FMPs or gilt/income funds. But, for non-tax payers or people in the 10% tax bracket, I think these are good NCDs to invest in.
Also, there is no doubt that monthly interest payment option is better than annual interest payment option, a long-term investor can opt for the cumulative interest payment option and sell these NCDs near maturity to save on paying tax on the interest income. I believe there is no clarity on the taxability of the accrued interest income as far as tradable NCDs/bonds are concerned.
Dear Sir,
If I sell these NCDs through my DMAT account before maturity, then I don’t have to pay any tax on the interest earned?…please explain.
Regards. Jayashree
Hi Jayashree,
If you have opted for the cumulative interest option and you sell these bonds before maturity, then only capital gain tax @ 10% will have to be paid.
Invested online thru icicidirect yesterday night. 2 applications of 1Lac each.hope to get full allotment as per subs figures.
ECL Finance NCD issue closes tomorrow i.e. June 19, 2014.
Day 2 (June 18) subscription figures:
Category I – Rs. 205 crore as against Rs. 120 crore reserved
Category II – Rs. 80.54 crore as against Rs. 80 crore reserved
Category III – Rs. 121.15 crore as against Rs. 200 crore reserved
Total Subscription – Rs. 406.70 crore as against total issue size of Rs. 400 crore
Hi Shiv,
If I apply tomorrow morning or tonigth for Cat3, will I get the NCD?
Praveen
Hi Praveen,
There is a very high probability that you’ll get full allotment.
Day 1 (June 17) subscription figures:
Category I – Rs. 205 crore as against Rs. 120 crore reserved
Category II – Rs. 62.68 crore as against Rs. 80 crore reserved
Category III – Rs. 80.85 crore as against Rs. 200 crore reserved
Total Subscription – Rs. 348.53 crore as against total issue size of Rs. 400 crore
Great response from the institutional investors on Day 1 of the issue. Going by the response of the retail investors, I think the issue should get closed in 2 to 3 days time.
Very good response in almost all the categories. I invested in ECL finance stock in January this year and have had excellent returns. (stock has doubled in less than 5 months) and recently investors like Mr Rakesh Jhunjhunwala invested huge sums in company which further strengthened my belief in this company. So overall I believe it’s good issue to subscribe.
I think one should get full allotment today if he invested before 5 pm ??
its nice ncd. good demand by institutions. even post tax yield look attractive compared to any bank FD.
—
http://appsbyrk.blogspot.com/
Yes RK, that’s right. All retail investors will get full allotment against their subscription for today.
Hi Shiv,
Is TDS applicable in case of such NCDs?
Thanks,
DPP
Hi DPP,
Yes, if you take these NCDs in physical/certificate form and your interest income exceeds Rs. 5000 in any of the financial years, then TDS will get deducted at the time of interest payment.
Excellent article….thanks Shiv
Thanks Ikjot for your encouraging words !!
dear mr shiv.
what difference for small investors like us for ECL earlier NCD which were secured & these new Ncd which are un-secured ?? does this make any difference for small investors ?
Hi Dr. Agarwal,
Though it definitely makes a difference, but the advantage to a secured lender is marginal as compared to an unsecured lender. An unsecured lender cannot raise his/her voice and claim a right on the assets of the company in case of liquidation.
But, if the financial condition of the company becomes so bad that the secured assets of the company do not carry a great market value, then even the secured lenders would find it difficult to claim their money back. I think the background and the backing of the promoters should not make ECL Finance’s lenders suffer.
dear mr shiv .
thanks for good explanation . can we get 1st day subscription figures ?
best wishes
Dr Agarwal
Dear Sir,
For any NCD-IPOs, you can get the daily-subscription-figures(as at 5pm on that day) on the BSE website as follows:-
http://www.bseindia.com–Quick Links(at the bottom)–Debt Issues–Scrip Name:__________(choose appropriately).
Thanks.