Month: July 2017

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]

SREI Equipment Finance 9.92% Non-Convertible Debentures (NCDs) – July 2017 Issue Details 

Infrastructure finance space has been facing a really difficult time over the past few years. But, off late it has been recovering well for the company and it has been able to improve on its asset quality front. The company has been able to contain its gross NPAs from 4.97% in FY14 to 2.48% in FY17 and net NPAs from 4.07% to 1.76% in the same period. However, this improvement has come at the cost of a slowdown in its revenue growth and net interest income.

Worst is probably not over for the company. But going ahead, with an expected improvement in the economy and the infrastructure space, the company is likely to do better and grow at a relatively higher speed.

Financials of SREI Equipment Finance Limited

(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Investors, with an appetite of taking some risk and who fall in the lower tax brackets, can consider investing in these NCDs. But, as the investment period is long, the investors would do well to be vigilant about the company’s asset quality and loan growth going forward.

In a falling interest rate scenario, 9.92% effective yield is quite attractive. But then 10 years is a long period to invest with a private company. Out of the nine options available, I would personally prefer Series I, with monthly interest payment option, as I would like to get back my principal investment amount and the interest thereon with a private company as early as possible.

Application Form – SREI Equipment 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 SREI Equipment Finance NCDs, you can reach us on +91-9811797407

SREI Equipment Finance is coming up with its issue of non-convertible debentures (NCDs) from this Monday i.e. July 17th. The company is offering interest rates in the range of 9.25% to 9.55% per annum, which effectively fall between 9.30% to 9.92%. These NCDs will be issued for a period of 5 years & 3 months, 7 years and 10 years.

These NCDs have been rated ‘AA+’ by Brickwork Ratings and SMERA and would also carry a tag of ‘Unsecured’ as far as the rights of its investors’ are concerned. Though the issue is scheduled to close on 31st of July, but given it carries such attractive interest rates in a falling interest rate scenario, it is highly unlikely that the issue would remain unsubscribed till then.

Let us quickly check some of the salient features of this issue:

Size & Objective of the Issue – Base size of this issue is Rs. 500 crore, with a green-shoe option to retain an additional Rs. 500 crore, thus making it a Rs. 1,000 crore issue. The company plans to use at least 75% of the issue proceeds for its lending activities and to refinance its existing loans and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – The issue will carry a coupon rate of 9.25% p.a. payable on a monthly basis, 9.30% p.a. payable annually and on a cumulative basis for a period of 5 years & 3 months. For 7 years maturity period, these rates would be 9.35% payable monthly and 9.40% for annual and cumulative options. The rates on offer are the highest for 10 years – 9.50% payable monthly or 9.55% payable annually or on a cumulative basis.

As you can check from the table below, these rates are effectively higher by 1.54% p.a. than the rates offered by Mahindra Finance in its ongoing issue.

For Category I and Category II investors also, these NCDs carry the same rate of interest as it is for Category III investors.

0.15% Additional Coupon for SREI Equipment Finance & SREI Infra Shareholders, NCD Holders, Senior Citizens & Employees – Existing shareholders and NCD holders of SREI Equipment Finance, SREI Infra, senior citizens aged more than 60 years of age and the employees of the company and SREI Infra will be offered an additional coupon of 0.15% per annum. Deemed date of allotment will be considered as the relevant date for these investors to be eligible for this additional rate of interest.

Minimum Investment – Investors are required to subscribe to at least ten units of these NCDs, thus making it a minimum investment of Rs. 10,000.

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 i.e. Rs. 300 crore

Category II – Non-Institutional Investors – 20% of the issue i.e. Rs. 200 crore

Category III – Individuals Investors & HUFs – 50% of the issue i.e. Rs. 500 crore

Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which the issue gets oversubscribed.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Credit Rating – Rating agencies, Brickwork Ratings (BWR) and SMERA have rated this issue as ‘AA+’ with a ‘Stable ‘ outlook. Debt instruments with such a rating are considered to have a high degree of safety regarding timely payment of interest and principal.

Unsecured NCDs – These NCDs are ‘Unsecured’ in nature i.e. in case of any default on its payment of interest or principal, the bondholders will not have any right on any of the assets of SREI Equipment Finance.

Listing, Premature Withdrawal & Put Option – These NCDs will get listed on both the stock exchanges – Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE), and the listing will take place within 12 working days from the issue closure date. Moreover, there is no option with the bondholders for a premature redemption and there is no option either with the company to buyback these NCDs from the investors.

Demat Mandatory except Series II, Series V and Series VIII NCDs – Though demat account is not mandatory to apply for these NCDs, however investors can apply for these NCDs in physical form only for Series II, Series V and Series VIII NCDs. Notably, these NCDs will pay interest rates on an annual basis.

TDS – Interest income earned on these NCDs is taxable and the investors are required to pay tax on it as per the respective tax slabs they fall into. TDS @ 10% will be deducted if these NCDs are held in physical/certificate form and annual interest income is more than Rs. 5,000. NCDs held in demat mode will not attract any TDS.

Should you invest in SREI Equipment Finance NCDs?

Infrastructure finance space has been facing a really difficult time over the past few years. But, off late it has been recovering well for the company and it has been able to improve on its asset quality front. The company has been able to contain its gross NPAs from 4.97% in FY14 to 2.48% in FY17 and net NPAs from 4.07% to 1.76% in the same period. However, this improvement has come at the cost of a slowdown in its revenue growth and net interest income.

Worst is probably not over for the company. But going ahead, with an expected improvement in the economy and the infrastructure space, the company is likely to do better and grow at a relatively higher speed.

Financials of SREI Equipment Finance Limited

(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Investors, with an appetite of taking some risk and who fall in the lower tax brackets, can consider investing in these NCDs. But, as the investment period is long, the investors would do well to be vigilant about the company’s asset quality and loan growth going forward.

In a falling interest rate scenario, 9.92% effective yield is quite attractive. But then 10 years is a long period to invest with a private company. Out of the nine options available, I would personally prefer Series I, with monthly interest payment option, as I would like to get back my principal investment amount and the interest thereon with a private company as early as possible.

Application Form – SREI Equipment 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 SREI Equipment Finance NCDs, you can reach us on +91-9811797407

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]

Mahindra & Mahindra Financial Services Limited, working & popularly known as Mahindra Finance, is launching its issue of non-convertible debentures (NCDs) from the coming Monday i.e. July 10th. The company is offering interest rates in the range of 7.86% to 8.05% for a period of 7 years to 15 years. The company plans to raise Rs. 2,000 crore from this issue and use it primarily for further lending and refinancing of its existing loans.

The issue is scheduled to close on July 28, however the company is free to close it much earlier if it gets the desired subscription well before that. These NCDs are ‘AAA’ rated, so many institutional investors and/or risk-averse investors would like not to miss this opportunity.

As we analyse it further, let us take a quick look at the salient features of this issue:

Size & Objective of the Issue – Base size of this issue is Rs. 250 crore, with a green-shoe option to retain an additional Rs. 1,750 crore, thus making it a Rs. 2,000 crore issue. The company plans to use at least 75% of the issue proceeds for its lending activities, to refinance its existing loans and for long-term working capital and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – The issue will carry a coupon rate of 7.86% p.a. for a period of 7 years, 8.01% p.a. for 10 years and 8.05% for 15 years. There are no options for monthly or cumulative interest payments.

For Category I and Category II investors, these NCDs will carry 0.10% lower rate of interest.

Minimum Investment – Investors are required to subscribe to at least ten units of these NCDs, thus making it a minimum investment of Rs. 10,000.

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 – 20% of the issue i.e. Rs. 400 crore

Category II – Non-Institutional Investors – 10% of the issue i.e. Rs. 200 crore

Category III – High Net-Worth Individuals (HNIs) & HUFs – 35% of the issue i.e. Rs. 700 crore

Category IV – Retail Individual Investors – 35% of the issue i.e. Rs. 700 crore

Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which the issue gets oversubscribed.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Credit Rating – Rating agencies, India Ratings (IND) and Brickwork Ratings (BWR) have rated this issue as ‘AAA’ with a ‘Stable ‘ outlook. Debt instruments with such a rating are considered to have the highest degree of safety regarding timely payment of interest and principal.

Unsecured NCDs – These NCDs are ‘Unsecured’ in nature i.e. in case of any default on its payment of interest or principal, the bondholders will not have any right on any of the assets of Mahindra Finance.

Listing, Premature Withdrawal & Put Option – These NCDs will get listed only on the Bombay Stock Exchange (BSE) and the listing will take place within 12 working days from the issue closure date. Moreover, there is no option with the bondholders for a premature redemption back to the company. In order to encash their investments, they need to sell these bonds on the stock exchange once they get listed.

Call Option – The company will have the option to call Series III of these NCDs at the end of the 10th year from the issuance date. The investors will not be compensated in any way for such an action.

Demat Not Mandatory – Demat account is not mandatory to invest in these NCDs as the investors will have the option to apply for these NCDs in physical or certificate form as well.

TDS – Interest income earned on these NCDs is taxable and the investors are required to pay tax on it as per the respective tax slabs they fall into. TDS @ 10% will be deducted if these NCDs are held in physical/certificate form and annual interest income is more than Rs. 5,000. NCDs held in demat mode will not attract any TDS.

Should you invest in Mahindra Finance NCDs?

Despite having a ‘AAA’ rating, I find no compelling reason for me to invest in such NCDs, except only two reasons – the liquidity comfort you get with the listed NCDs and longer tenors of the issue in case the interest rates drop further in the medium to long term.

But, even these two factors are not attractive enough for me to invest my money in this issue. The interest rates the company is offering are extremely unattractive to me. In fact, they are very close to most of the Post Office Small Saving Schemes. PPF is fetching 7.8% tax-free interest rate, while NSCs carry 7.8% taxable interest rate. While these are the instruments which any class of investor can invest in, other instruments which are meant for specific categories of investors offer even higher rate of interest. While Senior Citizen Savings Scheme carries 8.3% rate of interest, Sukanya Samriddhi Yojana offers even higher rate of interest of 8.4%, and that too tax-free.

Post Office Small Saving Schemes are more or less 100% safe and therefore the investors don’t require any kind of credit rating for their investments. Low liquidity and no scope of capital appreciation are the two reasons which stop me to invest in most of these post office small saving schemes.

Finally, if you want some alternative to bank fixed deposits (FDs), would like to play 100% safe as far as your capital is concerned and trust the management of the Mahindra group, then only I think these NCDs are meant for you. Otherwise, just give this issue a pass and invest your money in some better opportunities elsewhere.

Application Form – Mahindra 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 Mahindra Finance NCDs, you can reach us on +91-9811797407