Month: November 2018

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]

2018 so far has turned out to be a roller coaster year for the equity, as well as the bond markets. Mid and small cap companies have seen a massive cut in their stock prices. Portfolios have seen a massive value erosion and sentiment has once again turned negative. Market analysts, who were recommending a higher allocation to equity till early this year, have also become cautious to advise higher equity investments. Some analysts are calling it start of a bearish phase.

Debt portion of portfolios are also facing the music. Bond yields have undergone huge volatility amid dynamic economic conditions and highly uncertain borrowing programme of the government. Overall, bond yields have risen so far in 2018. However, conservative investors haven’t got the opportunity to enjoy such high rates on their fixed deposits. Fixed deposit rates are still below 8-8.5% with most of the banks. Post the IL&FS and DHFL crisis, private NBFCs are finding it difficult to raise money from the debt markets.

In such a dynamic economic environment, as the investors want to opt for safer investment options, NHAI is soon coming up with its maiden public issue of taxable bonds for the retail investors. NHAI has already filed its draft shelf prospectus with SEBI on November 16, 2018, so the issue is expected to open in the first fortnight of December.

NHAI is yet to announce the key details of the issue, like launch date, rate of interest, duration of the bonds etc. The company wants to raise Rs. 10,000 crore from this issue and plans to utilize these funds to finance its ambitious Bharatmala Project.

I’ll update this post as the company announces further details. Here you have some of the salient features of the issue.

Size of the Issue – NHAI announced its plans to raise Rs. 62,000 crore through debt issuance this financial year. It has already raised approximately Rs. 29,000 crore by issuing bonds to the institutional investors on a private placement basis. Out of the remaining Rs. 33,000 crore, the company has decided to raise Rs. 10,000 crore from this issue.

Coupon Rates on Offer – The company is yet to announce the interest rates it is going to offer in this issue. However, the market speculation is that the company will offer rates between 8.50% to 9% per annum for a period of 3 years to 10 years. I’ll update this post as the company discloses its rates.

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings, all rating agencies have assigned ‘AAA’ rating to this issue. Also, these bonds are ‘Secured’ in nature i.e. in case of any default in interest payments or principal repayment at the time of maturity, the bondholders will have the right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Like with most such recent NCD issues, Non-Resident Indians (NRIs) will not be able to make investments in this issue. Qualified Foreign Investors (QFIs) too are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and the company is yet to announce what percentage of the issue will be reserved for each of the categories during the allocation process:

Category I – Qualified Institutional Bidders (QIBs)

Category II – Non-Institutional Investors (NIIs)

Category III – High Net Worth Individuals, including HUFs, investing more than Rs. 10 lakhs

Category IV – Resident Indian Individuals, including HUFs, investing up to Rs. 10 lakhs

Allotment on First-Come First-Served Basis – Subject to the allocation ratio, 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 it gets oversubscribed.

Listing & Allotment – Like its previous issues, NHAI has decided to get its bondss listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE). NHAI will ensure that these bonds get allotted and listed on the stock exchanges within 6 working days from the closing date of the issue.

Demat A/c. Mandatory – Off late, these companies are making it impossible to apply for such bonds in physical/certificate form, and NHAI is no different. It has also made it mandatory to have a demat account in order to apply for these bonds. However, if you get these bonds allotted in your demat account, you will have the option to rematerialise them later in physical/certificate form if you decide to close your demat account.

No Lock-In Period – These bonds do not carry any lock-in period and you can buy/sell them on the stock exchanges at the market price whenever you want.

Loan Against Bonds – These bonds can be pledged or hypothecated for obtaining loans as per the terms set by the lending company.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 10,000 in this issue i.e. at least 10 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and the probability of full allotment is lower in the HNI category.

Interest Payment Date – NHAI is yet to announce the interest payment date for these bonds.

Record Date – For the payment of interest or the maturity amount, record date will be 15 days prior to the date on which such amount is due to be payable.

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]

JM Financial Credit Solutions, a venture between JM Financial Limited holding 50.01% and INH Mauritius holding 48.62%, is all set to launch its second issue of Non-Convertible Debentures (NCDs) this fiscal from the coming Tuesday, November 20, 2018. These NCDs will carry coupon rates in the range of 9.67% to 10.25%, resulting in an effective yield of 10% to 10.25% for the investors.

The company plans to raise Rs. 1,250 crore from this issue, including the green shoe option of Rs. 1,000 crore. The issue is scheduled to close on December 20, unless the company decides to close the issue prematurely once it is able to raise the desired amount before the scheduled closing date.

Before we take a decision whether to invest in this issue or not, let us first check the salient features of this issue.

ASBA Mandatory – Like equity IPOs, SEBI has made ASBA mandatory to apply for debt issues as well, effective October 1. So, you are no longer required to issue cheques to apply for these NCD issues. In case of physical applications, you will have to sign on the application form as per your bank records.

Size & Objective of the Issue – Base size of the issue is Rs. 250 crore, with an option to retain oversubscription of an additional Rs. 1,000 crore, making the total issue size to be Rs. 1,250 crore. The company plans to use the issue proceeds for its lending and financing activities, to repay interest and principal of its existing borrowings and other general corporate purposes.

Coupon Rate & Tenor of the Issue – The issue will carry coupon rate of 10.25% p.a. for a period of 120 months, 10.10% p.a. for 60 months and 10% p.a. for 42 months. These rates would be applicable for annual interest payment options only. Monthly interest payment option is also available with 120 months and 60 months tenors, and coupon rates for these periods would be 9.81% p.a. and 9.67% p.a. Respectively, interest payable on a monthly basis.

Credit Rating & Nature of NCDs – ICRA and India Ratings have rated this issue as ‘AA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature.

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have the below mentioned percentage fixed in the allotment:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 125 crore

Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 125 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 40% of the issue is reserved i.e. Rs. 500 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 500 crore

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

Allotment on First Come First Served Basis – Subject to the allocation ratio, 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 it gets oversubscribed.

Listing, Premature Withdrawal – These NCDs are proposed to get listed only on the Bombay Stock Exchange (BSE). The listing will take place within 12 working days after the issue gets closed. Though there is no option of a premature redemption, the investors can always sell these NCDs on the stock exchange.

Demat A/c. Mandatory – Demat account is mandatory to invest in these NCDs as the company is not providing the option to apply for these NCDs in physical or certificate form.

No TDS in Demat Form – Interest income with such NCDs is taxable in the hands of the investors and you will have to pay tax on the interest income while filing your income tax return. Moreover, as demat account is mandatory to invest in this issue, no TDS would get deducted from your interest income on NCDs held in demat form.

But, in case you decide to close your demat account and keep these NCDs in a physical form, then the company will deduct TDS on the interest payable on the interest payment date. TDS @ 10% will be deducted if these NCDs are held in physical/certificate form and annual interest income is more than Rs. 5,000.

Minimum Investment Size – The company has fixed Rs. 10,000 as the minimum amount to invest in this issue. So, if you want to invest in this issue, you need to apply for a minimum of ten NCDs worth Rs. 1,000 each.

Should you invest in JM Financial Credit Solutions NCDs?

Application Form of JM Financial 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 JM Financial NCDs, you can contact us at +91-9811797407