Muthoot Finance 9% Non-Convertible Debentures (NCDs) – April 2018 Issue

by Shiv Kukreja on April 5, 2018

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

Muthoot Finance is launching its issue of non-convertible debentures (NCDs) in the new financial year starting April 9, 2018. The company plans to raise Rs. 500 crore from this issue, with an option to retain oversubscription to the tune of Rs. 3,000 crore. These NCDs will carry coupon rates between 8% for 400 days and 9% for 60 months. Maturity period will range between 400 days to 60 months, having monthly, annually and cumulative interest payment options. The issue will remain open for a month and is scheduled to close on May 8, 2018.

Here are the salient features of the issue you should consider before taking a decision to invest or not:

Size of the issue – Base size of the issue is Rs. 500 crore and Muthoot will have the option to retain oversubscription to the tune of Rs. 3,000 crore, including the green-shoe option of Rs. 2,500 crore.

Minimum Investment – Investors are required to apply for a minimum of ten bonds of Rs. 1,000 face value i.e. an investment of at least Rs. 10,000.

Coupon Rates – Muthoot has decided to offer interest rates similar to what it offered last year in April 2017. These NCDs will carry coupon rates in the range of 8% for 400 days to 9% for 60 months. All these NCDs will be ‘Secured’ in nature.

Double your Money Option Missing – Muthoot used to offer an option to double your money in 8 years (or 96 months). This option was there last year as well, but it was ‘Unsecured’ in nature. However, there is no such option this year.

An effective yield of 9.06% p.a. results in doubling your money in 8 years. So, having an option of 9% for 5 years and then reinvesting the proceeds for another 3 years at approximately 9.25% would help you double your investment amount. But, you will have to consider tax effects on the interest payments.

You can check the rates offered for different maturities and different payment options from the table below:

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

Category I – Qualified Institutional Buyers (QIBs) – 20% of the issue is reserved i.e. Rs. 600 crore

Category II – Non-Institutional Investors & Corporates – 20% of the issue is reserved i.e. Rs. 600 crore

Category III – High Net Worth Individuals (HNIs) & HUFs investing more than Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 900 crore

Category IV – Retail Individual Investors, including HUFs investing up to Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 900 crore

Allotment on First-Come First-Served Basis –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.

NRI/QFI Investments – Non-Resident Indians (NRIs), foreign nationals and Qualified Foreign Investors (QFIs) among others are not allowed to invest in this issue.

Ratings & Nature of NCDs – CRISIL and ICRA, the two rating agencies involved in this issue, have assigned ‘AA/Stable’ rating to the issue, indicating the issue to be safe as far as timely payments of interest and principal investments are concerned. As mentioned above as well, all these NCDs are ‘Secured’ in nature.

Demat Account Mandatory – Muthoot has decided to issue these NCDs compulsorily in demat form. So, if you don’t have a demat account, you won’t be able to apply for these NCDs.

Taxability & TDS – Interest earned on these NCDs will be taxable as per the tax slab of the investor. However, as these NCDs will be allotted compulsorily in your demat accounts, no TDS will be deducted from your interest income.

Listing on BSE – Muthoot has decided to get its NCDs listed only on the Bombay Stock Exchange (BSE). Allotment as well as listing of these NCDs will happen within 12 working days from the closing date of the issue.

Should you invest in Muthoot Finance NCDs?

Despite of the fact that the bond yields have jumped by close to 1.5% in the last one and a half years, no company is willing to raise interest rates on their NCDs. In April 2017, when bond yields were far lower than their current levels, Muthoot offered interest rates in a similar range. SREI Infrastructure Finance and Edelweiss Retail Finance, both raised money in the previous quarter by issuing their NCDs and offered interest rates close to what Muthoot is offering in this issue.

I think Muthoot, SREI Infra Finance and Edelweiss Retail Finance, all should have offered higher interest rates. But, as long as banks are not willing to raise interest rates on their fixed deposits, these finance companies have the liberty to take this opportunity of raising money at such lower rates.

To me, these interest rates are not attractive. I would rather invest my money in debt funds or stocks of fundamentally sound companies for long term or bank FDs of shorter duration.

Application Forms – Muthoot 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 Muthoot NCDs, you can contact us at +91-9811797407

{ 18 comments… read them below or add one }

Harshit Patel April 6, 2018 at 8:48 AM

Hi,

U mentioned that u would not invest in this ncd and would prefer DEBT mutual funds instead.

Can you please highlight on what category of debt mutual fund should one invest?

Reply

Shiv Kukreja April 6, 2018 at 10:10 AM

Hi Harshit,
If you are bullish on corporate earnings recovery, then you should invest in income funds, and if you are confident about the govertment’s fiscal policy, then you should invest in gilt funds.

Reply

Aditya April 6, 2018 at 10:58 AM

My first come question is, it comes under LTCG tax if my interest goes above 1 lakh. And my second question is, for tax benefit, 15G or 15 H form is applicable here or not.

Reply

Shiv Kukreja April 6, 2018 at 11:39 AM

Hi Aditya,
1. Interest is taxable as Income from Other Sources as per your tax slab, and not LTCG.
2. These NCDs are to be bought compulsorily in Demat form, and in a demat form, no TDS gets deducted. So, no need to submit Form 15G or 15H.

Reply

Bobby April 6, 2018 at 11:26 AM

Many thanks Shiv — as always — for the candid and balanced views.

Reply

Shiv Kukreja April 6, 2018 at 11:57 AM

You are welcome Bobby! 🙂

Reply

Vijay April 9, 2018 at 10:17 AM

Are multiple applications allowed i n Muthoot NCD ?

Reply

Shiv Kukreja April 10, 2018 at 11:21 AM

Day 1 (April 9) Subscription Figures:

Category I – Rs. 4.33 crore as against Rs. 600 crore reserved – 0.72%
Category II – Rs. 3.89 crore as against Rs. 600 crore reserved – 0.65%
Category III – Rs. 2,944.27 crore as against Rs. 900 crore reserved – 327.14%
Category IV – Rs. 619.42 crore as against Rs. 900 crore reserved – 68.82%
Total Subscription – Rs. 3,571.91 crore as against total issue size of Rs. 3,000 crore – 119.06%

Reply

Shiv Kukreja April 10, 2018 at 11:22 AM

The issue is getting closed today.

Reply

Kamlesh Agrawal April 10, 2018 at 11:29 AM

I applied late last night (around 9:00PM) via ASBA in category IV (Retail Investor). Do you think I will get allotment?

Reply

Shiv Kukreja April 10, 2018 at 11:36 AM

Hi Kamlesh,
Though it depends on today’s subscription figures, still it seems that you’ll get 100% allotment.

Reply

abhinav April 10, 2018 at 1:51 PM

pls share the listing details when it gets listed. thanks

Reply

Mainsha P April 11, 2018 at 3:56 PM

Great content with nice insights
Loved reading it.
Keep up the great work !!!

Reply

Kamlesh Agrawal April 16, 2018 at 2:03 PM

Can you please update on final subscription figures? Also, when will allotment happen for this?

Reply

Shiv Kukreja April 18, 2018 at 8:55 AM

Allotment should happen this week itself.

Reply

Shiv Kukreja April 18, 2018 at 8:54 AM

Last Day (April 10) Subscription Figures:

Category I – Rs. 4.32 crore as against Rs. 600 crore reserved – 0.72%
Category II – Rs. 6.17 crore as against Rs. 600 crore reserved – 1.03%
Category III – Rs. 2,944.09 crore as against Rs. 900 crore reserved – 327.12%
Category IV – Rs. 619.42 crore as against Rs. 900 crore reserved – 79.72%
Total Subscription – Rs. 3,672.06 crore as against total issue size of Rs. 3,000 crore – 122.40%

Reply

Sbs April 27, 2018 at 12:19 PM

Is it, for tax benefit, 15G or 15 H form is applicable here or not.

Reply

Dhiraj Patel May 15, 2018 at 4:28 PM

A Systematic Investment Plan allows you to invest regularly a fixed sum in your favorite mutual fund scheme. In SIP, a fixed amount is deducted from your savings account every month and directed towards the mutual fund you choose to invest in. It allows you to buy units continuously without worrying about the market ups and downs. Not only does investing in an SIP bring financial discipline but also helps you plan your budget and expenses better.

Reply

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