JM Financial Credit Solutions 10.25% NCDs – November 2018 Issue

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 shivskukreja@gmail.com

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.

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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?

Indian NBFCs are facing their toughest of times of the last 4-5 years. Liquidity crisis has taken a toll on their fund raising plans. These NBFCs are finding it difficult to raise money even at higher interest rates. Nobody knows how long it is going to last. But, I have a view that it is not as severe as it is made out to be, and it should not last for more than 6 months.
 
In these tough times, JM Financial Credit Solutions has raised its interest rates on these NCDs by 50 basis points (0.50%) per annum. Though these rates look attractive as they carry 0.50% higher rate as compared to its last issue, what matters more during such tough times is the market sentiment. Investors are extremely cautious with investing their money with these NBFCs at this point in time. They are playing wait and watch game for the moment, and would require more clarity from the companies like DHFL, IL&FS, Yes Bank and others before putting their money in riskier investments. It makes sense too. Why to invest for a 1-2% extra for a year when your 100% capital could be at risk?
 
So, I think this is not the best of the times for the investors to take risk with their capital. They should wait for at least a month or so for the dust to settle down and state election results to pour in, and probably then decide whether to invest in safer investments for long term steady flow of regular income or take risks for a scope of higher returns in the form of capital appreciation. Investors, who still want to take a plunge in such NCDs or bonds, should explore already listed tax-free bonds of the government companies from the secondary markets.

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

15 thoughts on “JM Financial Credit Solutions 10.25% NCDs – November 2018 Issue

      1. Thanks Sir. Will it be possible to provide the link where the subscription
        be checked by our selves rather than bothering you all the time.

  1. urge caution as they are exposed to real estate developers in the ongoing nbfc crisis. what price are their 2028 bonds (issued earlier this year)?

  2. Day 1 (November 20) Subscription Figures:

    Category I – Rs. 0.30 crore as against Rs. 125 crore reserved – 0.0024 times
    Category II – Rs. 2.16 crore as against Rs. 125 crore reserved – 0.02 times
    Category III – Rs. 16.88 crore as against Rs. 500 crore reserved – 0.034 times
    Category IV – Rs. 94.54 crore as against Rs. Rs. 500 crore reserved – 0.19 times
    Total Subscription – Rs. 113.88 crore as against total issue size of Rs. 1,250 crore – 0.09 times

  3. Sir,

    Request you to post your analysis in case the investment is made , what are the post tax returns on the same. How the same can be represented in a 10 yr scenario on an investment of Rs. 1,00,000/-.

    Regards

    Shailendra

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