Shriram Transport Finance Corporation NCD Issue

by Shiv Kukreja on July 20, 2012

in Featured, Fixed Deposits

This article is written by Shiv Kukreja

Shriram Transport Finance Corporation will be launching the first public issue of Non-Convertible Debentures (NCDs) this financial year from July 26th. The issue size is Rs. 600 crore including a green-shoe option of Rs. 300 crore. The company plans to use the proceeds for various financing activities including lending and investments, to repay existing loans, for capital expenditures and other working capital requirements. The issue closes on August 10, 2012.

The bonds offer an annual coupon rate of 10.25% and 10.50% for a period of 36 months and 60 months respectively. What the company has done to make these NCDs attractive for the individual investors is that they will be offered an additional 0.90% p.a. making it an annual coupon rate of 11.15% and 11.40% respectively. This means even if an individual investor buys it from the secondary markets they are going to get 11.15% or 11.40%.

Many of you must have remembered that the company came with a similar kind of issue last year also. Bonds issued last year are currently yielding 11.07% under the 60 months reserved individual option and 12.23% under the 36 months reserved individual option. So, going by these yields, 11.40% and 11.15% is actually attractive for the individual investors.

The investors will have the option to get the interest either paid annually or at the end of the tenure along with the principal. Under the cumulative interest option, retail investors will get Rs. 1,716.15 after 5 years and Rs. 1,373.19 after 3 years for every Rs. 1,000 invested. For all other investors, these amounts stand at Rs. 1,647.90 and Rs. 1,340.10 respectively.

The interest earned would be taxable but the company will not deduct any TDS on it as is the case with all of the listed NCDs. The issue keeps a minimum investment requirement of Rs. 10,000 (or 10 bonds of face value Rs. 1,000) which seems reasonable from the small retail investors’ point of view.

These bonds will offer reasonable liquidity to the investors as they are going to list on both the stock exchanges – NSE and BSE. Unlike last year, the retail investors will have the option to apply these bonds in physical form also. All the remaining investors will have to subscribe these bonds compulsorily in demat form only.

40% of the issue is reserved for the Reserved Individual Category i.e. for the individual investors investing up to Rs. 5 lakhs and another 40% of the issue is reserved for the Non-Reserved Individual Category i.e. for the individual investors investing above Rs. 5 lakhs. 10% of the issue is reserved for the institutional investors and the remaining 10% is for the non-institutional investors. NRIs and foreign nationals among others are not eligible to invest in this issue.

Shriram Transport NCD July 2012

Shriram Transport NCD July 2012

A slew of NCD issues had hit the markets last year when companies like Shriram Transport, Shriram City Union Finance, Muthoot Finance, Manappuram Finance, Religare Finvest, India Infoline Investment Services etc. came with approximately ten such issues. I must tell you, except Shriram Transport NCDs, all other NCDs listed at a discount and that too at quite a deep discount of 5-8% in some cases. Many of them have still not been able to recover from those losses. They must be yielding higher than 13% even now.

But Shriram group is a quite stable group and the issue has been rated ‘AA/Stable’ by CRISIL and ‘AA+’ by CARE suggesting that these bonds are reasonably safe to invest. Unlike last year, there are no put/call options available either to the investors or to the company.

 

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{ 101 comments… read them below or add one }

Siddhant July 20, 2012 at 9:37 am

Hey Shiv,

Does the individual catagory include HUFs?

Reply

Shiv Kukreja July 20, 2012 at 7:31 pm

Hi Siddhant… yes, HUFs are clubbed with “Resident Indian Individuals” to categorise them into ‘Individual’ category and will be eligible for 0.90% additional incentive on coupon.

Reply

MangoMan July 20, 2012 at 10:45 am

Hi Shiv,

How about doing a post on the NCD’s which are currently listing at a discount ?

Regards

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Shiv Kukreja July 20, 2012 at 1:53 pm

Hi MangoMan… sure, I’ll definitely try to give it a shot. As I mentioned, there are approximately ten different issues with various options from about six different companies will be a challenge but I’ll try.

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amit July 20, 2012 at 1:05 pm

hi, Hw safe are these NCD’s??
Is it a good option for a 63 yr old with a 3 yr lock in period?? I am still having active income. So it is worth to invest in it, or rather i opt for the safety of fixed deposit??

Reply

Shiv Kukreja July 20, 2012 at 8:19 pm

Hi Mr. Amit… nobody can comment on the safety of these NCDs with 100% confidence, not even rating agencies. As mentioned above, these NCDs have been rated ‘AA/Stable’ by CRISIL and ‘AA+’ by CARE, which shows this issue is reasonably safe. HUDCO tax-free bonds were also ‘AA+’ rated but I think they are more safe than these bonds.

There are a few banks which must be giving around 10.5% rate of interest to the senior citizens. Banks (or particularly bank FDs) are generally considered safer than these issuers but FDs dont offer some benefits which these bonds offer. Listed NCDs have a scope of capital appreciation if interest rates fall, do not attract TDS if taken in a demat form and offer liquidity also. There are certain trade-offs which you need to evaluate based on your financial goals and how you perceive risk and return.

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amit July 21, 2012 at 1:23 pm

thanks Shiv…really informative…

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Shiv Kukreja July 21, 2012 at 3:36 pm

You are welcome! :-)

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Aditya July 22, 2012 at 2:26 pm

Would advice you stick to tax free bonds which IRFC, HUDCO, NHAI and PFC issue. Or invest in FD considering your age and requirements

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VikasG July 20, 2012 at 1:53 pm

Thanks Shiv for this post. I am thinking of applying for this issue. As I do my own taxes, I want to keep my taxes simple.

If I go for the cumulative option, how would I handle the taxation of the interest? Would I estimate the annual interest and pay tax on it every year or pay it just once at the time of maturity?

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Shiv Kukreja July 20, 2012 at 2:47 pm

Thanks VikasG… I think 100% clarity on the taxability of interest is still not there. My take on this is that if an investor opts for the “cumulative option” of any listed taxable bonds then he/she should pay the applicable tax either on maturity or when the bonds are sold on the exchanges.

On maturity, interest would be taxable as “Income from Other Sources”. But, if the bonds are sold on the exchanges, then the “Capital Gain” tax would be applicable, either short-term or long-term as the case may be.

This is just my view and there is a possibility that my view is considered incorrect by the tax authorities. So one should consult his/her tax advisor before coming to any conclusion.

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VikasG July 20, 2012 at 2:31 pm

The issue is open for about 2 weeks. I am thinking of applying in the 2nd week (maybe 2nd last day) so I can have my funds in my bank account and earn interest on it.

Is my thinking correct or is there any advantage to applying as early as possible?

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Shiv Kukreja July 20, 2012 at 2:51 pm

:-)… your bank will give 4% interest on your money (some banks might give a tad higher than 4%) but here the company is giving 9% on the application money to the successful allottees subject to TDS and 2.50% on the refund amount.

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Shiv Kukreja July 20, 2012 at 3:02 pm

Also, applying early would make you better placed as far as the allotment is concerned as it would happen on a “first-come-first-served” basis.

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Aditya July 22, 2012 at 2:28 pm

You wont get allotment. The issue would be oversubscribed on day 1 and 2 for retail. Rate cut in offing so investors would like to lock in higher yields. Invest on day 1 if u plan

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ankurm July 22, 2012 at 6:01 pm

Dont you think there is high supply of bonds in the market after Gold NBFCs hit the market?. The interest rates are attractive, albeit 20 bps lower than last year. Whereas credit spreads should actually widen as STFL’s business growth has weakened.

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Anand July 20, 2012 at 6:19 pm

Vikas, Please apply on the first day itself, otherwise you will not get allotment. It happened to me last year two times, where my application money was refunded in FULL.

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Shiv Kukreja July 20, 2012 at 7:20 pm

I think this will not be the case with this issue but yes, if somebody has decided to go for it then it is best to do it as soon as possible.

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Anup July 20, 2012 at 11:42 pm

Hi,

You mentioned that some of the listed NCDs are trading at discount. So, doesn’t it make more sense to buy them from market (ofcourse if they have good rating and liquid in the market) than buying this NCD?

-Anup

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Shiv Kukreja July 21, 2012 at 1:00 am

Hi Anup… Hi Anup… If what you are saying made a practical sense then the bonds which are trading at a YTM greater than Coupon would have been trading at a YTM less than Coupon. These NCDs (YTM greater than Coupon) either dont belong to the Shriram group or have very low trading volumes if they belong to this group.

This shows Shriram group commands a brand credibility among these NBFCs in the investing community and its NCDs are relatively preferred as compared to the NCDs of other groups mentioned in the article.

If suppose Kingfisher Airlines NCDs are already listed and offer 20% YTM to you, will you buy KFA NCDs or subscribe to these NCDs ?? I dont know about you but I’ll definitely go for Shriram NCDs.

At the same time, I’m not saying Shriram Transport NCDs are going to list at a premium for sure and investors must subscribe to it. It depends on the demand and supply at the time of listing among various other factors. Investors should think long term, look at a bigger picture, should not speculate unnecessarily and take calculated decisions.

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ankurm July 21, 2012 at 6:02 pm

The yields on NCDs have already declined quite a lot. Even muthoot and manappuram NCD prices have risen, resulting in lower YTMs now. Another noteworthy thing, secondary market bond purchase entail transaction expense (brokerage), whereas primary market purchase entails transaction income (typically brokers share 1% commissions). So difference in yields narrows

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Abc July 21, 2012 at 12:14 pm

Hi,

How to apply for this issue…is their provision to apply directly through bank or do we need demat account.

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Shiv Kukreja July 21, 2012 at 8:01 pm

Hi Abc… “Reserved Individual Investors” (Individuals/HUFs investing up to Rs. 5 lakhs) have the option to apply either in physical form or in demat form. Like Fixed Deposits, you’ll get a bond certificate if you apply in physical form.

To apply in physical form, you need to fill an application form, attach the KYC documents along and submit it at any of the collection centres nearest to you. KYC documents constitute self-attested copies of PAN card and proof of residential address.

But if you want to invest more than Rs. 5 lakhs under the “Non-Reserved Individual Investor” category, then it has to be compulsorily in demat form only.

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Abc July 21, 2012 at 12:18 pm

Moreover, how liquid this issue is going to be, in case , one wants to redeem it through stock market, before maturity.

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Shiv Kukreja July 21, 2012 at 8:10 pm

I think liquidity under the “Reserved Individual Investors” category will be reasonable enough to encash your investment quite easily. Under other categories, liquidity remains an issue going by the last year’s experience.

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Kunal July 21, 2012 at 8:40 pm

For starters, thanks for the post !!

Just wanted to know where can I check the current rates for NCDs and even infra bonds (taxable as well as tax free).

Thanks in advance.

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Shiv Kukreja July 21, 2012 at 9:05 pm

Hi Kunal… Infra Bonds are currently not trading as they have a lock-in period of 5 years. NCDs trading on the NSE can be tracked from this link: http://www.nseindia.com/live_market/dynaContent/live_watch/equities_stock_watch.htm?cat=SEC

You can also check some of these NCDs (including those trading on the BSE) from this link: http://www.edelweiss.in/Debt/DebtSnapshot.aspx?cn=SBIN-N5

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Aditya July 22, 2012 at 2:29 pm

just go to fimmda.org and under corporate bonds traded archive u will get trades over last 1 year

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Aditya July 22, 2012 at 2:21 pm

Issues to consider before investing

1. Credit quality – Shriram is one of the better credit quality NBFC’s hence investors can take a credit call

2. 11.15% and 11.40% – to invest money in the 3 yr and 5 yr segment for a investor check the post tax yield which would be around 7.40 – 8% depending on which tax slab u classify. If equity is not your choice (assuming ur gng to hold for more than 1yr) this bonds beat all FD and liquid MF returns. Hence good bet

3. SHIV mentioned about NCD’s trading at discount and not able to recover losses. For someone who would hold any bond till maturity would recover his entire principle and interest assuming the company is not defaulting. I would rather put it this way if you are holding bonds trading in discount from its purchase price specially shriram names just buy more in secondary and increase ur portofolio yield (price and yield have inverse relation)

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ankurm July 22, 2012 at 6:03 pm

Does it mean an instituitional investor cant get higher coupon by buying from ndividual secondary market? In this case, in the absence of institutional investors, the liquidity will be low on the exchange?

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Shiv Kukreja July 22, 2012 at 7:33 pm

Hi Ankur… yes, an institutional investor (Category I), a non-institutional investor (Category II) and even an individual investor/HUF investing more than Rs. 5 lakhs will get a lower coupon of 10.25% or 10.50%. That is the case if these investors subscribe it in the public issue or even buy it afterwards from the secondary markets. It is definitely going to affect liquidity to some extent.

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ankurm July 22, 2012 at 10:16 pm

Thanks shiv..Any idea, what is the reservation % for Individual investors for currently listed bonds?

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Shiv Kukreja July 23, 2012 at 1:08 am

It was the same at 40% for the “Reserved Individual Portion” including HUFs investing up to Rs. 5 lakhs and 40% for the “Unreserved Individual Portion” investing more than Rs. 5 lakhs.

But last year, the story was a bit different. Firstly, the interest differential was quite less and in fact there were three slabs. The original coupon was 11.10% for 5 years and 11% for 3 years as against 11.60% and 11.35% respectively for the “Reserved Individual Portion” and 11.35% and 11.10% for the “Unreserved Individual Portion”.

So, this year, it is less attractive for the Category I, II & III investors to invest in these bonds and hence lesser interest from them on listing.

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Vivek July 22, 2012 at 10:30 pm

I dont quite understand the excitement with this one. When we get 8.3% taxfree from the various bonds this 11.4% pre-tax is really not very exciting. Correct me if I am missing something.

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ankurm July 22, 2012 at 11:22 pm

i) 8.3% tax free is no longer available, current yield to maturity on tax free bonds is down to 7.6-7.9%
ii) tax free bonds are for longer duration 10-15 years. STFL bonds etc are for relatively shorter duration 3-5 years. So they suit investors with different time horizon

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Shiv Kukreja July 23, 2012 at 1:28 am

One thing you are missing here is that not all of the investors fall in the 30% or 20% tax bracket. It is 11.40% tax-free equivalent for people who dont pay tax at all and 10.23% tax-free equivalent for people in the 10.30% tax bracket. People invest in the name of housewives, their children and their parents in order to get a higher yield.

Also, where are the checks in place whether all 30% or 20% tax bracket investors are actually paying tax on the interest income? One can term it to be a negative thinking but this actually happens.

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Vivek July 23, 2012 at 10:06 am

Shiv the <30% tax bracket makes sense. Good callout

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ANEK July 23, 2012 at 11:28 am

hi ! Shiv,

Great effort, but what is your take on the business environment of the company, Growth is tapering off declined from 22% last year to about 11% this year, NPAs are showing steep rise GNPA 3.1 % v/s 2 % (2011). Tata Motors is facing severe headwinds in its CV division. With company facing squeeze from all the sides viz. business, asset quality, sources of finacing, Corporate Governance issues errupted on some share swap. Do you think stability of the company is on the decline ?, Secondly with deluge of ncds issued by STFC the demand for its ncd will be inadequate to allow an exit without principal loss and finally how do you see it listing above face value or dip below for a day or two ??

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Shiv Kukreja July 23, 2012 at 12:11 pm

Hi ANEK… Business environment has been tough for the auto industry as a whole and sentiment is not good either. Infrastructure space, on which the fortune of these companies hinges, is bleeding and calling for reforms.

But I think Shriram group is doing better than other NBFCs. Reason being it has a good control over its market share and its margins have been more or less stable. Though figures suggest marginal decline in the asset quality, it has been the case with most of the players in the industry.

Last year, 11.60% NCDs issued to the “Reserved Individual Category” listed at a good premium and closed at a price of Rs. 1031.44 on the listing day. I think the institutional interest this year would be lower as compared to the last year. It is very difficult to predict the listing price of this issue but I hope it lists at a premium this year also given the retail investors do not sell in a hurry.

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vikrant July 23, 2012 at 4:39 pm

Shiv,

You mentioned that there are few NCD issues that are giving a yield of 13%, If you have the details can you share few good one with firm financial Background that we can invest, because 13% looks very good to me.

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Shiv Kukreja July 23, 2012 at 5:07 pm
MoneyVriksh.com July 25, 2012 at 5:45 pm

Hi Manshu,
Here is an IMPORTANT NOTICE which investors should know. So, you can update post about this.

All Collecting Bankers will accept applications only up to 4.00 p.m. Any Application banked post 4.00 PM will be considered in next day. Banks will affix next days seal on the Applications.

E.g Application Banked on 26th July 2012 will be considered for the same day only if it is banked upto 4.00 PM. All Applications banked after 4.00 PM will bear bank seal of 27th July 2012

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Manshu July 25, 2012 at 6:00 pm

Thanks for the info – much appreciated.

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Karthik Reddy Chintaparthi July 26, 2012 at 11:29 am

If I subscribe for these bonds on day 1 of issue through a demat account, my money will get debited on the same day. When will they allot the debentures ? Just in case if I don’t get D’s alloted, will they refund the money “with the interest”. Please clarify.

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Shiv Kukreja July 26, 2012 at 11:46 am

Hi Karthik… Have a look at the last year’s experience:

Issue Opening Date: June 27th, 2011
Issue Closing Date: July 9th, 2011
Allotment Date: July 12th, 2011
Listing Date: July 18th, 2011
Issue got oversubscribed on 1st day itself

The company will give 9% p.a. interest on the application money to the successful allottees subject to TDS and 2.50% p.a. on the refund amount.

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Sudip Sengupta July 27, 2012 at 1:40 pm

Hi Shiv,

If I hold the NCD in demat form, what is the normal charge deducted in demat. Also while encashing after maturity, do I need to pay brokerage in demat?

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Shiv Kukreja July 27, 2012 at 7:35 pm

Hi Sudip… There are no separate demat charges except the Annual Maintenance Charges (AMC). At the time of maturity, I think you’ll have to bear the transfer charges, if at all, thats it. I dont think there are any other charges applicable.

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Sandeep July 30, 2012 at 12:21 am

Hi Shiv,

Have a simple question, If I subscribe to this NCD through ICICI Direct then will I get any bond certificate to my mailing address ? If yes, does this certificate is needed at the time of maturity to reedem these bonds or the interest/principal amount will be credit to the respective bank account automatically ?

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Shiv Kukreja July 30, 2012 at 11:37 am

Hi Sandeep… If you subscribe for it online through ICICI Direct, you’ll get an allotment letter informing you all the details about your investment. People who apply for it in physical form get the Bond Certificates, which they need to surrender on maturity. For you, no certificate is required at the time of maturity and the interest/principal amount will be credited to your linked bank account.

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Shiv Kukreja August 1, 2012 at 10:56 am

As expected, the issue got oversubscribed and the company closed the offering prematurely yesterday itself. Bonds are expected to list in the third week of this month.

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Karthik Reddy Chintaparthi August 11, 2012 at 11:41 am

Did anyone got the bonds alloted to your demat account ? Aug 10 is the allotment date right ?

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Shiv Kukreja August 11, 2012 at 2:05 pm

There was no confirmed date of allotment as such. I’ve not got the bonds alloted in my family members’ demat accounts. I think the allotment will start sometime next week.

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Shiv Kukreja August 11, 2012 at 5:11 pm

STFC NCD 2012 – “Basis of Allotment” has been announced:

Category 1 – Institutional Investors – 100% Allotment
Category 2 – Non-Institutional Investors – 100% Allotment
Category 1 – HNIs – 94.84% Allotment
Category 1 – Retail Investors – Day 1 – 100% Allotment, Day 2 – 79.52% Allotment

Tentative Listing Date – August 16th, 2012 – Thursday

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Shiv Kukreja August 11, 2012 at 5:14 pm

STFC NCD 2012 – “Basis of Allotment” has been announced:

Category 1 – Institutional Investors – 100% Allotment
Category 2 – Non-Institutional Investors – 100% Allotment
Category 3 – HNIs – 94.84% Allotment
Category 4 – Retail Investors – Day 1 – 100% Allotment, Day 2 – 79.52% Allotment

Tentative Listing Date – August 16th, 2012 – Thursday

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Manshu August 11, 2012 at 9:13 pm

Thanks for the update Shiv. So, like previous occasions, people who applied early got the full quota this time as well.

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Shiv Kukreja August 13, 2012 at 1:19 pm

Allotment has started… “Deemed Date of Allotment” is August 10, 2012. You can check the allotment status from this link:

http://www.iepindia.com/irncd_detail_2.asp

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Madhab August 14, 2012 at 10:22 pm

Thanks Shiv, for sharing the status link. I got 80% allotment and the bonds are now appearing in my demat a/c. The name of the NCD appearing in demat a/c has coupon rate in it and it says 10.25%. I was expecting 11.15% and I am pretty sure I applied for the option one as retail investor (applied only for 75K).

Here is the name – SHRIRAM TRANSPORT FINANCE COMPANY LIMITED SERIES-I 10.25 NCD 10AG15 FVRS1000

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Shiv Kukreja August 14, 2012 at 10:57 pm

Hi Madhab… Please dont worry, this is actually how it should be. Series-I carries the coupon rate of 10.25%. All those investors, who are individuals and have an investment of less than Rs. 5 lakhs on the record date, will be eligible for an additional incentive of 0.90%. This additional incentive will make you get 11.15% on the interest payment date.

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SRINIVAS August 15, 2012 at 5:48 am

Refund amount is now credited to the Bank Account. I have applied on 27th July’2012. Applied for 75K and were allotted 60K. Can anybody tell me how the interest amount has been calculated?

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Shiv Kukreja August 15, 2012 at 10:43 pm

Hi Srinivas…

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Shiv Kukreja August 15, 2012 at 10:54 pm

The company has given 9% interest on the application money to the successful allottees and 2.50% on the refund amount. The interest has been calculated for 12 days. So I think you should have got Rs. 189.86 (Rs. 177.53 + Rs. 12.33) into your savings account.

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SRINIVAS August 16, 2012 at 9:46 am

That is correct.Thanks for the clarification. By the way, what is the opinion on Shriram transport finance FDs which are currently on offer? They are also being offered @10.75% for 3 years. Though not connected with this post, I have another question . Is it possible to apply for HDFC platinum deposits online?

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Shiv Kukreja August 16, 2012 at 10:59 am

Personally I would rather invest in Shriram NCDs or other NCDs as compared to Shriram FD @ 10.75% for 3 years.

Yes, it is possible to invest in HDFC Platinum deposits online. Please check this link:

https://www.fundsindia.com/content/jsp/fixedDeposit/FixedDepositAction.do?method=showFixedDepositHome

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Shiv Kukreja August 17, 2012 at 12:07 pm

Shriram Transport Finance NCDs to list on BSE/NSE on August 21st, 2012.

Series I – 11.15% Annual Interest – BSE Code “934850” – NSE Code “SRTRANSFIN NR”
Series II – 11.40% Annual Interest – BSE Code “934851” – NSE Code “SRTRANSFIN NS”
Series III – 11.15% Cumulative Interest – BSE Code “934852” – NSE Code “SRTRANSFIN NT”
Series IV – 11.40% Cumulative Interest – BSE Code “934853” – NSE Code “SRTRANSFIN NU”

Source: http://beta.bseindia.com/markets/MarketInfo/DispNoticesNCirculars.aspx?page=20120816-8

Lets see how it goes…

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Shiv Kukreja August 21, 2012 at 11:23 am

Shriram Transport Finance NCDs have listed today at a discount, but thankfully a very marginal discount. The highest traded category on the NSE “SRTRANSFIN NS” listed at Rs. 997.90, which is also the highest price of the day, touched a low of Rs. 990 and are currently trading at Rs. 995. Probably a good opportunity for investors to invest in these bonds and also the bonds which got issued last year. The yield is around 11.44%.

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VikasG August 22, 2012 at 1:49 pm

Hi all,

I am a retail individual investor. Can I buy 500 bonds in *both* series 2 and 4 and still extra 0.9%.

Does anyone have a link to the detailed pdf of the offering?

Thanks.

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Shiv Kukreja August 22, 2012 at 3:10 pm

Hi VikasG… Total no. of bonds in your name should not be more than 500 (across all the Series – I, II, III and/or IV) on the record date to be eligible for 0.90% additional incentive.

Here is the link to check the prospectus of the offer:

http://www.stfc.in/board-of-director.aspx

You need to click on the ‘Prospectus’ under the list.

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VikasG August 22, 2012 at 3:19 pm

Thanks Shiv.

Pasting the direct link of the prospectus here: http://www.stfc.in/pdf/static_pdf/STFC%20Prospectus%20Final.pdf

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VikasG August 22, 2012 at 3:33 pm

> Total no. of bonds in your name should not be more than 500 (across all the Series – I, II, III and/or IV) on the record date to be eligible for 0.90% additional incentive.

Please tell me where in the prospectus this is mentioned. I got 398 bonds out of 500 I had applied. Thinking of buying some more as the bonds are trading below their face value.

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Shiv Kukreja August 22, 2012 at 3:48 pm

“Reserved Individual Investors” – “Resident Indian individuals who apply for NCDs aggregating to a value not more than Rs. 5 Lacs, across all Series I, Series II, Series III and/or Series IV NCDs”

“Reserved Individual Portion” – “Applications received from Reserved Individual Investors grouped together across all Series I, Series II, Series III and/or Series IV NCDs”

“NCD Holders who are Non Individuals SHALL NOT be eligible for the additional incentive of 0.90% per annum for Series I NCDs held on any Record Date”

“NCD Holders who are Non Individuals SHALL NOT be eligible for the additional incentive of 0.90% per annum for Series II NCDs held on any Record Date”

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VikasG August 23, 2012 at 11:51 am

Thanks Shiv.

I wish they had written it clearly. We have to combine 2 statements to reach the conclusion.

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Shiv Kukreja August 23, 2012 at 12:18 pm

Probably that is where financial advisors come into play.

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VikasG August 22, 2012 at 2:02 pm

For those of you having trouble finding these bonds on NSE, I am posting the link here:

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=SRTRANSFIN&series=NU

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Shiv Kukreja August 22, 2012 at 4:03 pm

Series NU is a relatively thinly-traded series as total no. of bonds issued is 643853 and offers cumulative interest of 11.40%.

Series NS offers 11.40% annual interest and is the most active series with total no. of bonds issued is 2621121:

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=SRTRANSFIN&series=NS

Series NR offers 11.15% annual interest and is the 2nd most active series with total no. of bonds issued is 2346416:

http://www.nse-india.com/live_market/dynaContent/live_watch/get_quote/GetQuote.jsp?symbol=SRTRANSFIN&series=NR

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V.K.Gupta August 24, 2012 at 8:58 pm

Dear Sir,

Highly impressed to go through full interactive Q & A session. & most of my querries got solved related to Shri Ram NCD Series II Aug 2012.

Thnxs again.

V.K.Gupta

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Shiv Kukreja August 26, 2012 at 1:28 am

Thank you! We’ll try to maintain the quality of the posts here and make it more interactive with your active participation.

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Chinmoy Nag September 14, 2012 at 8:41 pm

Dear Mr. Kukreja,

I want to invest in NCDs from the secondary market. Could you suggest 2-3 NCDs for a tenor of 5 years, the basis of the suggestion to be based on reliability and return.

Thanks,
Chinmoy Nag

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Shiv Kukreja September 15, 2012 at 12:44 pm

Dear Mr. Nag,

Reliability-wise, I would personally invest in 9.95% SBI bonds and 10.75% IFCI bonds.

Returns-wise, reliability-wise and liquidity-wise, I would invest in 11.50% Shriram Transport Finance NCDs only.

These are my personal preferences and may differ from others’ preferences.

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VikasG September 15, 2012 at 2:12 pm

Hi Shiv,

Any special reason you say ” I would invest in 11.50% Shriram Transport Finance NCDs only”? Do you like Shriram Transport group in general or specifically their 11.5% NCDs?

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Shiv Kukreja September 15, 2012 at 6:21 pm

Hi VikasG… I’ve observed the business model of all these companies, their financials, their management, these NCD issues and their performance over the past 2 years. Business models of all other cos. like Muthoot, Manappuram, IIFFL and Religare look fragile to me. Shriram Transport has a good control over its business and it does not attract much competition. Financials also give me enough comfort. Thats why I would prefer NCDs of Shriram group among these cos.

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harineem September 16, 2012 at 4:48 pm

Hi Shiv
WHere can we check details like business model and financials for these companies issuing NCDs? Also any particular reason Shriram Transport Finance NCDs issued recently are at lower price than issue price. If I am not wrong dividend payout should be in Oct so shouldnt it rise?

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Shiv Kukreja September 16, 2012 at 6:02 pm

Hi harineem… You can check all these business and financial details on their website and digging deep into their prospectus and annual reports.

STFC NCDs, issued last month, are trading at a discount due to higher supply, lower demand and a large no. of other issues hitting the markets. Actually the problem is that all these NCDs are sold by our agents to us and very few people invest in them on their own, with a long-term view, realising a value in these fixed income instruments. These issues get subscribed to the tune of 750 crore, 600 crore or 500 crore during their offer periods but when they list at a 50-40-30-20 rupee discount to their issue prices, then no agent approaches the clients to buy them at the discounted market price. Hardly any NCD attracts a turnover of more than Rs. 1 crore in a single day. Once the selling gets reduced in 3-4 months time, these NCDs start recovering and give good returns after that.

All NCDs of the Shriram group, both STFC and SCUF, give interest (& not dividend) on April 1st every year. But still it should start rising soon, hopefully if the RBI announces any rate cut tomorrow.

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harineem September 17, 2012 at 6:22 pm

Thanks again Shiv. One question if I buy the NCDs now at the discounted rate am I still entitled the dividend at same rate or will it be calculated at market rate. Also how do they calculate dividend in April if somebody purchases say in Sep 15,2012. Will it be still yearly?
It seems a good deal to buy if dividend remains same for a discounted NCD?

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Shiv Kukreja September 17, 2012 at 8:08 pm

Yes, you’ll get the interest at the same rate of 11.50% p.a. for 234 days i.e. from August 10th, 2012 (the date of allotment) to March 31st, 2013. When you buy the bond at the discounted price, then yield to maturity (YTM) is your actual yield per annum, if you hold the bonds till maturity.

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Shiv Kukreja September 17, 2012 at 8:18 pm

Sorry, it is @ 11.40% p.a. and not 11.50%. Also, be very careful that your investment does not cross Rs. 5 lakhs under a single name.

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V.K.GUPTA October 9, 2012 at 10:16 pm

Dear Mr. Shiv Kukreja,

Pl accept my heartiest congratulations for the xecellent knowledge about the NCD”s & other investment tools.

In you Q&A session dated Sept 17,2012, you have stated that – “Your investment does not cross Rs 5 Lacs under a single name ( In NCD’s of a single Co). My request & querry is …

I was allotted 398 NCD of Shriram TR. fin co @ 10.50 +0.90 (Total 11.40% ) date of allotment 10-08-2012. Later on I purchased 300 more NCD from open market, now total 698 NCD. Pl. clarify that I shall be getting Interest @ 11.40% on full 698 NCD”s & there will not be any limit of Rs 5 Lac investment( NCD are in my single name capacity).
Thanking you for your nice advise as always.

V.K.Gupta

M:09829006715

Gaurav Bansal September 14, 2012 at 10:20 pm

not sure if this is the right place to talk but here’s something related I did not really understand. Today (14/09/12), I noticed that one bond offering of Shriram City Union Finance – N6 was up by 1.43% while N5 was down by 1.15%. Another, Shriram Transport Finance N1 was down by 1.72% while N2 was up by 1.08%.
How could 2 very similar products go in reverse directions in 2 cases. N1 down, N2 up; N5 down, N6 up. N1/N2 have very similar tenors (60months), similar coupons (11/11.25%). Same for N5/N6 (11.6/11.85%).

Is it just a case of demand/supply or is there something more to it since each of the pairs is from the same company, same financials etc. The only thing I can see is that the in each case the bond with higher coupon went up. Anyone?

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Shiv Kukreja September 15, 2012 at 1:13 pm

Hi Gaurav… It is only due to the demand and supply factors and nothing else. The volumes traded during the day were very low. There were only 95 units traded under STFC – N1 and only 85 units traded under SCUF – N6.

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Shiv Kukreja October 10, 2012 at 12:14 pm

Dear Mr. V.K. Gupta… Thanks a lot for your kind words!

I want to stand corrected on my earlier comment of Rs. 5 lakhs limit for additional incentive of 0.90%. Actually, the limit was for the allotment purposes and not for the incentive. My apologies for mistakenly making an incorrect statement. The additional incentive of 0.90% is applicable to all individuals/HUFs irresepective of their investment amount. So, in your case also, you will get 11.40% for all of the 698 NCDs.

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Deepak November 14, 2012 at 11:22 pm

I purchased some Shriram Transport NCDs for 3 yr and 5 yrs tenor through BSE. Will I be getting the 0.9% additional coupon?

This article says that I will be getting the additional coupon. But I just wanted to confirm this.

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Shiv Kukreja November 15, 2012 at 9:55 am

Yes Deepak, you’ll get the additional incentive 0.90%.

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pradeep September 2, 2013 at 7:37 pm

when the bond period is over will the company credit the interest + principle [for cumulative] directly to bank accounts. what abt the bonds. will they be debited automatically from demat accounts ? or do we have to send mail to them saying “Dear sir..36 months are over ..pls send us interest .. and also debit the bond” . pls provide more details. Thanks.

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VikasG September 3, 2013 at 9:42 pm

Good question, pradeep.

I would like to know this as well.

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Aditya September 5, 2013 at 6:54 pm

If the terminal tenor of the bond is 36 months then the bond would be redeemed and paid into your bank ac for demat bonds.

If the terminal tenor is higher but you have a put/call option 36 months then the co would mostly send u a communique in this regards, asking if you want to exercise your put option or the co would credit your payment if the co exercises call option.

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Shiv Kukreja September 5, 2013 at 7:18 pm

Hi Pradeep, Vikas & Aditya,

Just to mention Aditya’s info in a different way – No action is required on the part of a NCD holder for the NCDs held in his/her demat account. The company transfers the maturity proceeds directly into the bank account linked to the demat account and the NCDs stand extinguished on the payment of maturity proceeds.

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pradeep September 5, 2013 at 8:37 pm

Thanks Shiv and Aditya.

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Aditya September 5, 2013 at 6:54 pm

If the terminal tenor of the bond is 36 months then the bond would be redeemed and paid into your bank ac for demat bonds.

If the terminal tenor is higher but you have a put/call option 36 months then the co would mostly send u a communique in this regards, asking if you want to exercise your put option or the co would credit your payment if the co exercises call option.

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Rakesh August 1, 2014 at 11:06 am

I had applied for STFC ncd bonds. No bonds have been allotted to me. Can you please tell me when the money will be refunded by STFC ?

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Shiv Kukreja August 2, 2014 at 2:45 pm

Hi Rakesh,
You should have got the money credited in your bank account by now. I think you should contact the Registrar for the same as soon as possible.

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Ravi August 4, 2014 at 12:54 pm

Hi Shiv,

I got Series – 3 allotment. Later I purchased some debentures from market. The total units crossed 500. Will I be treated as individual investor? What is the impact on the interest? will it be still 11.5 p.a. Till what amount I can invest like this?

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Shiv Kukreja August 5, 2014 at 12:15 am

Hi Ravi,
Yes, you will be treated as an individual investor as you are not a company or an institutional investor. Also, despite becoming a high net worth individual investor (HNI) for these NCD purposes, you’ll continue to enjoy the higher rate which is applicable to the retail investors. There is no investment limit for the individual investors.

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