DHFL 9.30% Non-Convertible Debentures (NCDs) – August 2016 Issue

by Shiv Kukreja on August 1, 2016

in Investments

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 skukreja@investitude.co.in

After the successful issue of Edelweiss Housing Finance Limited (EHFL), DHFL, or Dewan Housing Finance Limited, is coming out with its issue of Non-Convertible Debentures (NCDs) from the coming Wednesday i.e. August 3, 2016. These NCDs will carry coupon rates in the range of 8.83% to 9.30%, resulting in an effective yield of 9.20% to 9.30% for the individual investors.

Though the issue is scheduled to close on August 16, it is likely that it will get oversubscribed prior to its closing date. Given a bumper response to the Edelweiss Housing Finance NCDs issue, there should be a reasonably high demand for this issue as well.

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

Size & Objective of the Issue – The company plans to raise Rs. 4,000 crore from this issue, including the green shoe option of Rs. 3,000 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 9.20% p.a. for a period of 3 years (36 months), 9.25% p.a. for 5 years (60 months) and 9.30% p.a. for 10 years (120 months). Investors will have the option to receive interest on a monthly, annual or cumulative basis.

CPI Linked Floating Interest Rate NCDs – This is the most unique feature of this issue. The company has decided to offer CPI-linked floating interest rate to its Series X NCD investors and there will be a ‘Floor’ as well as a ‘Cap’ on the interest rate. Floor has been set at 8.90% p.a. and Cap at 9.50% p.a. The specified spread will be 4.18% p.a. for Category III & Category IV investors. For the first year, reference CPI has got calculated at 5.02% p.a., so it is 5.02% + 4.18% = 9.20%.

Picture1

Suppose, we have 4.72% as the reference CPI for the next year. In that case, the rate of interest will be 8.90% for the second year.

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 – Qualified Institutional Bidders (QIBs) – 20% of the issue i.e. Rs. 800 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 800 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 1,200 crore

Category IV – Resident Indian Individuals including HUFs – 30% of the issue is reserved i.e. Rs. 1,200 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

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 & Nature of NCDs – CARE and Brickwork Ratings have rated this issue as ‘AAA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature.

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 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 bonds on the exchanges.

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

TDS – Though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return.

Should you invest in DHFL NCDs?

In 2013-14, when G-Sec yield was ruling above 9%, investors were scared to invest in debt securities due to negative returns on their investments. With falling yields on Government Securities (G-Secs) and corporate bonds, interest rates on various investment products like fixed deposits (FDs), post office small saving schemes, non-convertible debentures (NCDs) and tax-free bonds have all fallen by 1% to 2.5% in the last two years or so.

Now, with a fall in bond yields and 15-20% appreciation in bond prices, investors are chasing theses debt investments. But, I think that period of making easy money is over now and it would be very difficult for us to have similar returns going forward. Investors should not expect returns in double digits now on.

That being said, these rates of 9.20% to 9.30% do not attract me much, despite the issue being rated as ‘AAA’ by the rating agencies. I would rather prefer SBI NCDs yielding ~8.50% or Tax-Free Bonds yielding ~7% or equity mutual funds earning an average annual return of 15% or so. Conservative investors should avoid these NCDs and explore other options like post office saving schemes, tax-free bonds, debt mutual funds or other listed NCDs.

Investors, who are not required to pay any tax on their annual taxable income or who fall in the 10% tax bracket or who have high degree of confidence in the execution capabilities of DHFL’s management, can consider investing in these NCDs for a period of 3 years or at max 5 years. I personally avoid longer term investment periods with private companies, so would advise my clients too to avoid the 10-year option in this case.

Application Form of DHFL 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 DHFL NCDs, you can reach us at +919811797407

{ 106 comments… read them below or add one }

AMIT August 1, 2016 at 12:18 PM

i think issue is not of 400 cr but 4000cr. and it is too big a issue to get return on listing .your comment please

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Shiv Kukreja August 1, 2016 at 2:16 PM

Thanks a lot Amit for pointing it out, I just overlooked this info! I have made the required corrections in the post. I too think there is very little scope of any listing gains with this issue, not only due to its issue size, but also due to lower coupon rates on offer.

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nitesh patel August 2, 2016 at 7:25 AM

is there cumulative option available

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Shiv Kukreja August 2, 2016 at 11:48 AM

Series VII, VIII & IX are cumulative options.

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nitesh patel August 2, 2016 at 7:35 AM

and interest payment dates of all different options please shiv

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Shiv Kukreja August 2, 2016 at 12:00 PM

Interest Payment Date is not announced as yet by the company.

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Swaminathan August 2, 2016 at 10:28 AM

Thanks for yr write up on DHFL NCD whici is exhaustive & informative

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Shiv Kukreja August 3, 2016 at 12:24 PM

Thanks Swaminathan!

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nitesh patel August 2, 2016 at 5:16 PM

interest in x series will be paid monthly or annually shiv and difference between v11 and X series options please

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Shiv Kukreja August 3, 2016 at 12:25 PM

Interest in Series X will be paid annually. Series VII will have cumulative interest and Series X will have annual interest which would be variable and fall between 8.90% & 9.50%.

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nitesh patel August 2, 2016 at 8:51 PM

my agent is giving me 0.70 incentive back on 10 years monthly & 0.60 on 5 years option so even if these ncd list at 993 or below issue price then also I am not in a loss so should I go for it dear shiv

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Shiv Kukreja August 3, 2016 at 12:27 PM

Paying back incentives is illegal as per SEBI, so please do not discuss such things here on this forum.

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Swati Singh August 3, 2016 at 12:16 PM

Hi,
It’s Non Convertible Debentures, instead of Cumulative, right?

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Shiv Kukreja August 3, 2016 at 12:27 PM

Hi Swati,
That’s right, it has been corrected now.

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abhinav August 3, 2016 at 12:50 PM

thank u Mr.Shiv for detailed review once again. Kudos to your good work.
well i have applied for few NCD in 5 years monthly option.
regards
abhinav .

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Shiv Kukreja August 3, 2016 at 1:13 PM

Thank you Abhinav!

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abhinav August 3, 2016 at 12:57 PM

Dear Shiv,
pls explain what is the meaning of effective yield , as in case monthly interest for 5 years is 8.88% but effective yield is 9.25% .pls explain in brief.
thanks

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Shiv Kukreja August 3, 2016 at 1:15 PM

Effective yield of 9.25% incorporates the compounding effect of 8.88% / 12 payable monthly.

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nitesh patel August 3, 2016 at 1:09 PM

bse site is showing 3 times issue has been subscribe til now please comferm thi shiv and how many times on nse this issue has been subscribe till now because I will be subscribe this issue on the basis of till 2am supscription figures so please give latest supscription figures please shiv

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Shiv Kukreja August 3, 2016 at 1:33 PM

At 1 p.m., it is subscribed 1.31 times. The issue should get oversubscribed today itself.

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Jainidhi August 3, 2016 at 2:31 PM

Hi,

Is there any possibility for listing gain ?

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Shiv Kukreja August 3, 2016 at 3:38 PM

Hi Jainidhi,
There is a good probability that these NCDs will list at a premium. But, the premium will not be very high.

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nitesh patel August 3, 2016 at 4:13 PM

today’s supscription figures please and what percentage of allotment would retail can get invester can get shiv

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Chaitanya August 3, 2016 at 4:31 PM

Its oversubscribed overall. Its oversubscribed in all categories except category 2. But 30 more mins to go…

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Shiv Kukreja August 3, 2016 at 5:24 PM

Day 1 (August 3) Subscription Figures:

Category I – Rs. 4,947.80 crore as against Rs. 800 crore reserved – 6.18 times
Category II – Rs. 2,666.03 crore as against Rs. 800 crore reserved – 3.33 times
Category III – Rs. 9,321.69 crore as against Rs. 1,200 crore reserved – 7.77 times
Category IV – Rs. 1,856.08 crore as against Rs. 1,200 crore reserved – 1.55 times
Total Subscription – Rs. 18,791.60 crore as against total issue size of Rs. 4,000 crore – 4.70 times

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Chaitanya August 3, 2016 at 5:48 PM

Shiv,
Cumulative Demand Schedule page is blank in BSE.. http://www.bseindia.com/markets/publicIssues/DisplayIPO.aspx?id=1154&type=DPI&idtype=1&status=L&IPONo=1227&startdt=8%2f3%2f2016

So how did u get BSE + NSE category-wise details?

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Shiv Kukreja August 3, 2016 at 5:53 PM

Yes Chaitanya, above figures are total of BSE & NSE category-wise.

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Shiv Kukreja August 3, 2016 at 5:26 PM

Extraordinary subscription numbers these are. Huge liquidity available in the markets right now, both in stock markets as well as debt markets.

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Chaitanya August 3, 2016 at 5:43 PM

yes.. do you know if any more NCDs are expected in near future?

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Shiv Kukreja August 3, 2016 at 5:54 PM

SREI Infra NCDs issue will hit the markets sometime this month.

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nitesh patel August 3, 2016 at 5:48 PM

tremendous response to a huge issue dear shiv I have applied for 65 ncd so what would be my allotment

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Shiv Kukreja August 3, 2016 at 5:54 PM

You will be allotted approximately 42-43 NCDs.

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pradeep August 3, 2016 at 9:22 PM

I have applied 40 so ho many will I get ? Is it 8

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Shiv Kukreja August 4, 2016 at 12:21 PM

Hi Pradeep,
You should get 26-27 NCDs allotted.

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nitesh patel August 3, 2016 at 7:11 PM

is this issue is closed or can we apply tomorrow in retail category and how much allocation we accept if we apply tomorrow

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dr rajesh bhatia August 3, 2016 at 8:30 PM

I don’t think you will get any allotment if you apply tomorrow.

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Jainidhi August 4, 2016 at 7:48 AM

Thanks Shiv for the informative updates.

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Shiv Kukreja August 4, 2016 at 12:21 PM

Thanks Jainidhi!

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Shiv Kukreja August 4, 2016 at 12:23 PM

DHFL NCDs issue will get closed today i.e. August 4, 2016, at 5 p.m.

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Arya August 4, 2016 at 3:18 PM

Hi

Can you please explain term ” Secured ” on practical terms.
Thanks.

Aalok Arya

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nitesh patel August 4, 2016 at 5:17 PM

today’s subscription figures please

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Shiv Kukreja August 4, 2016 at 8:30 PM

Day 2 (August 4) Subscription Figures:

Category I – Rs. 4,947.80 crore as against Rs. 800 crore reserved – 6.18 times
Category II – Rs. 2,666.03 crore as against Rs. 800 crore reserved – 3.33 times
Category III – Rs. 9,222.36 crore as against Rs. 1,200 crore reserved – 7.69 times
Category IV – Rs. 1,814.85 crore as against Rs. 1,200 crore reserved – 1.51 times
Total Subscription – Rs. 18,651.04 crore as against total issue size of Rs. 4,000 crore – 4.66 times

The issue stands closed today.

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vishal August 5, 2016 at 9:43 AM

how can subscription category IV of 1st day of 1.55 times becomes 1.51 times on 2nd day??
it should increase or steady but not going to decrease sir??
Reply awaited

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Shiv Kukreja August 8, 2016 at 11:31 PM

Hi Vishal,
This could be because of technical rejections, modifications/withdrawal of applications.

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nitesh patel August 5, 2016 at 5:57 PM

if your retail supscription
figures is correct shiv then we could get allotment 60 percent if applied on second day please correct me if I am wrong

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Shiv Kukreja August 8, 2016 at 11:35 PM

Hi Nitesh,
2nd day applicants will not get any allotment.

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dr rajesh bhatia August 5, 2016 at 9:30 PM

those who applied for 100 debentures will approximately get 65.

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Shiv Kukreja August 8, 2016 at 11:36 PM

Thanks Dr. Bhatia for your inputs!

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nitesh patel August 6, 2016 at 12:38 PM

dear shiv please clear our doubts regarding second day supscription figures

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T.C.Parthasarathy August 8, 2016 at 11:10 AM

Due to the small savings rate cut, we, Senior Citizens are constrained to go in for such investment options to get an interest rate of about 9%.

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Shiv Kukreja August 8, 2016 at 11:44 PM

Hi Mr. Parthasarathy,
Senior citizens are there in each & every country. India is the only big economy where you get such high rates. One should take these opportunities with both hands. Rates should fall more here if India needs to grow.

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JD August 8, 2016 at 6:00 PM

Does any no the portion of allotment ?
I have applied for 200 NCD’s how much allotment will i ge t?

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dr rajesh bhatia August 8, 2016 at 6:49 PM

130 approx

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JD August 8, 2016 at 7:00 PM

Thank you for the response

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Shiv Kukreja August 8, 2016 at 11:45 PM

Hi JD,
You should get around 133-134 NCDs allotted.

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JD August 9, 2016 at 2:45 PM

Thank you Shiv.

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Shiv Kukreja August 11, 2016 at 1:19 PM

You are welcome JD!

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vishal August 9, 2016 at 5:34 PM

can we have complete article on security traded on clean price & yield w.e.f 8/8/16 on bse. circular no 20160725-14

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vishal August 9, 2016 at 5:35 PM

if i sell tax free bond today and accrued interest is credited in my bank a/c . then this interest is tax free or not for taxation point

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Shiv Kukreja August 11, 2016 at 1:22 PM

Interest received post allotment is always tax-free with tax-free bonds.

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Shiv Kukreja August 11, 2016 at 1:21 PM

Hi Vishal,
I’ll try to cover it in a few days.

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nitesh patel August 10, 2016 at 9:05 PM

according to today’s et paper nhai will issue tax free bonds in 2016 so is this true and can retailers can subscribe this issue or not dear shiv

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Shiv Kukreja August 11, 2016 at 1:59 PM

I don’t think NHAI will issue tax-free bonds and if at all they will be allowed to do so, it will be done on a private placement basis.

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abhinav August 11, 2016 at 1:05 PM

any idea when will the NCD wld be credited in our demat ac

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Shiv Kukreja August 11, 2016 at 2:01 PM

Hi Abhinav,
DHFL NCDs should get credited by tomorrow evening.

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Chaitanya August 16, 2016 at 12:58 PM

I didnt get allotment still. no refund also. Applied 1st day. Should I wait further or contact Karvy?

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JD August 11, 2016 at 4:46 PM

I heard of SREI Infrastructure Bonds coming up around 20th August ?
Ne update on the same?

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vishal August 11, 2016 at 5:07 PM

please use common sense ..
on 20th august saturday how srei ncd start ???

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JD August 11, 2016 at 5:17 PM

Please take some English reading classes tuition and then reply
I have said that i just heard it and used the word around 20th august.
Google the around word and then come back.
Increase your common sense first then give advice.

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abhinav August 11, 2016 at 5:35 PM

Hahaha chill guys..take it light..

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Ragu August 12, 2016 at 4:40 PM

when will be the allotment ? will the listing be atleast 2 % ?

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nitesh patel August 13, 2016 at 12:09 PM

45 out of 65 alloted to me
dear shiv

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Ragu August 13, 2016 at 12:11 PM

Where did you see the allotments ? received any SMS ?

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abhinav August 13, 2016 at 2:17 PM

Have u got credit in ur de mat ac. Me still not got any??

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Ragu August 13, 2016 at 12:17 PM

i have applied for 840 lots

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nitesh patel August 13, 2016 at 3:33 PM

18003454001 toll free number of Karvy give your pan number or application number they will confirm you whether you have alloted or not abhinav

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abhinav August 13, 2016 at 3:53 PM

Ok.thanks. have the same been credited to your demat ac??

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dr rajesh bhatia August 14, 2016 at 3:17 PM

allotted 137 against 200 application…………

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abhinav August 16, 2016 at 12:31 PM

when is the listing dear shiv??

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Sunil August 16, 2016 at 3:05 PM

Hi Guys;

Have you received refunds of the partial amount from DHFL. By when do they show up in the investment portal; i.e the share registrar process for allotment is completed?

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Shiv Kukreja August 18, 2016 at 6:56 PM

Hi Sunil,
Allotment/Refund process has completed. NCDs should soon get reflected in your demat account as they get listed tomorrow.

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nitesh patel August 17, 2016 at 9:16 PM

according to business line dhfl to raise another tranchee of ncd of about 10 thousand crore we can accept good allotment in that isue isn’t it shiv

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Shiv Kukreja August 18, 2016 at 6:45 PM

Hi Nitesh,
Subscription/Allotment will depend on the rate of interest offered by the company as the issue details get announced.

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Shiv Kukreja August 18, 2016 at 6:17 PM

DHFL NCDs to get listed on the BSE & the NSE tomorrow i.e. August 19th – http://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20160818-11

Here are the BSE and the NSE codes for the same:

8.83% 3-year NCDs – Monthly Interest – BSE Code – 935794, NSE Code – N2
8.88% 5-year NCDs – Monthly Interest – BSE Code – 935798, NSE Code – N4
8.93% 10-year NCDs – Monthly Interest – BSE Code – 935802, NSE Code – N6
9.20% 3-year NCDs – Annual Interest – BSE Code – 935806, NSE Code – N8
9.25% 5-year NCDs – Annual Interest – BSE Code – 935810, NSE Code – NA
9.30% 10-year NCDs – Annual Interest – BSE Code – 935814, NSE Code – NC
9.20% 3-year NCDs – Cumulative Interest – BSE Code – 935818, NSE Code – NE
9.25% 5-year NCDs – Cumulative Interest – BSE Code – 935820, NSE Code – NF
9.30% 10-year NCDs – Cumulative Interest – BSE Code – 935824, NSE Code – NH
9.20% 3-year NCDs – Floating Rate Annual Interest – BSE Code – 935828, NSE Code – NJ

Deemed date of allotment has been fixed as August 16, 2016. Annual interest will be paid on August 16th every year. Monthly interest will be paid on 16th of every month starting September 16th, 2016.

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Ragu August 18, 2016 at 6:39 PM

Will the listing gain atleast 2 % ?

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Shiv Kukreja August 18, 2016 at 7:02 PM

I don’t think there should be a listing gain of 2%. It is not justified to have this kind of listing gain. But, I won’t be surprised either if it is there.

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manoj jain August 22, 2016 at 1:27 PM

9.3% bond price is almost at par 1000 on nse. ?

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Shiv Kukreja August 22, 2016 at 6:44 PM

Yes Manoj, that is due to low coupon rate these NCDs are carrying. These NCDs are good for long-term investment if you expect interest rates to go down further in future.

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manoj jain August 23, 2016 at 1:18 AM

thanks.
I’m holding 500 EHFL 10%.
Also bought 61 DHFL 9.3% on listing day. I can buy more approx 340 NCD’s.
which one i should buy?
or i should buy any other NCD?
please suggest.

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nitesh patel August 22, 2016 at 3:57 PM

despite issue got good response from all categories why listing in all series is not good dear shiv ecl finance ncd Ten years monthly interest is trading at 1037 and dhfl n6 monthly interest 10 years is trading at 993 well below the issue price inspite dhfl is a tripple rating company why such a huge difference I can’t understand dear shiv

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vishal August 22, 2016 at 6:34 PM

i think indiabulls ncd and dhfl ncd will coming in future increases supply. shivji please give expert comment

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Shiv Kukreja August 22, 2016 at 6:58 PM

Hi Vishal,
I didn’t get your query. Can you plz reframe your comment?

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Shiv Kukreja August 22, 2016 at 6:55 PM

EHFL 10-year NCDs carry 9.57% coupon rate, while DHFL 10-year NCDs carry 8.93% coupon rate. Moreover, Rs. 1031.90, at which EHFL 10-year NCDs are quoting on the BSE, includes 35 days accrued interest. ‘AAA’ rating matters, but not much in this case as Edelweiss is a bigger group as compared to DHFL.

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Shiv Kukreja August 22, 2016 at 7:05 PM

Link to check allotment status – http://kosmic.karvy.com:81/ipotrack/

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JD August 24, 2016 at 6:38 PM

From 29th August Another DHFL bond series is comming ?
Whats your review on that ?
Any specific reason for back to back NCD bonds from DFHL ?

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Shiv Kukreja August 26, 2016 at 11:01 PM
nitesh patel August 24, 2016 at 7:46 PM

9.10% for 3 year’s 9.15% for 3 year’s and 9.20%
for 7 years both anual amd cumulative option there is no monthly options for 10 years this time correct me if I am wrong dear shiv

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nitesh patel August 24, 2016 at 8:03 PM

9.25% for 7 years dear shiv a little correction in my previous coment

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anjanikumar August 25, 2016 at 12:09 AM

Hello shiv. Do you have any idea about dhfl’s upcoming Rs 10000 crore ncd issue?

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pradeep August 26, 2016 at 3:14 PM

why is the issue opened at end of month. Salaried people cannot apply.

Here is the issue details.

http://www.indiainfoline.com/article/news-top-story/dhfl-to-open-proposed-secured-ncd-public-issue-on-29th-august-2016-116082600308_1.html

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dr rajesh bhatia August 26, 2016 at 7:01 PM

also no cumulative option apparently in this issue.?

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abhinav August 26, 2016 at 7:05 PM

Dhfl series N6 trading at 992 on nse below face value it’s a good buy at current levels.

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Shiv Kukreja August 26, 2016 at 10:59 PM

DHFL 9.25% Non-Convertible Debentures (NCDs) – August 2016 Tranche II Review – http://www.onemint.com/2016/08/26/dhfl-9-25-non-convertible-debentures-ncds-august-2016-tranche-ii-review/

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HARISH August 26, 2016 at 11:11 PM

I wanted to know the taxability of NCDs.
If I hold cumulative NCD for more than one year and sell in the market, what will be my interest income/capital gain or both.

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ninad1975 September 6, 2016 at 10:31 AM

when will be allotment of dhfl ncd–29/08/16

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Shiv Kukreja September 12, 2016 at 5:59 PM

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