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 firstname.lastname@example.org
Regular readers of OneMint must be quite familiar with NCDs or non-convertible debentures. There have been many such NCD issues in the past couple of years and here is one such public issue for this financial year. Shriram Transport Finance Company Limited (STFCL) will be launching this issue from July 16th and the same will get closed in a couple of weeks time on July 29th.
Size of Shriram Transport NCD Issue, Ratings and Safety
The size of the issue is Rs. 750 crore, including an option with the company to retain over-subscription to the tune of Rs. 375 crore. The issue has been rated AA/Stable by CRISIL and AA+ by CARE.
These NCDs are also secured in nature, which means some specific immovable property or other assets will be mortgaged in favour of the Debenture Trustee to cover 100% of the principal and interest payments. In case the company is not able to pay your principal investment back at the time of maturity or goes insolvent before that, the investors have the right to claim their payments by getting the assets liquidated.
Categories of Investors
The investors would be classified in the following four categories:
- Category I – Institutional Investors
- Category II – Non-Institutional Investors (NIIs)
- Category III – High Net-Worth Individuals (HNIs)
- Category IV – Retail Individual Investors (RIIs)
50% of the issue is reserved for the Retail Individual Investors i.e. for the individual investors investing up to Rs. 5 lakhs, 30% of the issue is reserved for the High Net-Worth Individual Investors 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. The allotment will be made on a first-come-first-served basis.
Tenors and Rate of Interest of Shriram Transport NCD
The bonds will be issued for a tenure of 36 months and 60 months with annual interest option and cumulative interest option. The bonds will offer the base coupon rates of 9.65% per annum and 9.80% per annum for a period of 36 months and 60 months respectively. For Series II and Series V, 50% of the face value will be redeemed after completion of 48 months and the remaining 50% will be redeemed after 60 months from the date of allotment.
Like last year, category III & category IV investors i.e. individual retail and HNI investors including HUFs, will be given an additional incentive over and above the base coupon rate and it will be 1.25% per annum for 36 months and 1.35% per annum for 60 months, making it an annual coupon rate of 10.90% and 11.15% respectively. So, irrespective of your investment amount as an individual, you will keep getting the higher rate of interest, even if you are an HNI with investments in excess of Rs. 5 lakhs.
There is a monthly interest option as well but it is available only under 60 months period and that too with a lower rate of interest of 10.63% per annum, including the additional incentive of 1.23% per annum.
The company has decided to keep the minimum investment requirement of Rs. 10,000 i.e. 10 bonds of face value Rs. 1,000.
Listing on the Stock Exchanges and TDS
These NCDs will get listed on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE). Investors will have the option to apply these NCDs in physical form also, except for Series III NCDs, which will be allotted compulsorily in the demat form.
The interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, if you take these NCDs in the demat form, the company will not deduct any TDS on it.
Financials of the company
During the year ended March 31, 2013, total income of the company increased by 11.37%, from 5,894 crore to 6,564 crore and the net profit jumped 8.27% from 1,257 crore to 1,361 crore. Assets under management (AUM) figure stood at Rs. 49,676 crore as against Rs. 40,215 crore of last year, a jump of 23.53%. Net interest margins (NIMs) also jumped to 3.64% as against 2.91% of previous year.
Gross NPAs and Net NPAs of the company stood at 3.20% and 0.77% as on March 31, 2013 as against 3.06% and 0.44% respectively as on March 31, 2012.
A couple of significant points to be mentioned here. Shriram Capital is the promoter company of Shriram Transport Finance Company Limited (STFCL) and it has applied for a banking license with the RBI for which the deadline ended earlier this month on July 1st. Also, Ajay Piramal, the Chairman of Piramal group, recently acquired 10% stake in Shriram Capital for a reported Rs. 650-700 crore, valuing the promoter company at Rs. 6,500-7,000 crore. These two events speak in favour of the company and strengthen investors’ confidence also.