Mahindra & Mahindra Financial Services 9.50% NCDs – January 2019 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

Mahindra & Mahindra Financial Services Limited (MMFSL) is launching its public issue of non-convertible debentures (NCDs) from Friday this week, January 4, 2019. This will be the first public issue of NCDs by the company this financial year. The company plans to raise Rs. 3,500 crore from this issue, including the green shoe option of Rs. 3,000 crore.

These NCDs will carry coupon rates in the range of 9.05% to 9.50%, resulting in an effective yield of 9.07% to 9.50% for the investors. The issue is scheduled to close on January 25, unless the company decides to foreclose it.

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

Size & Objective of the Issue – Base size of the issue is Rs. 500 crore, with an option to retain oversubscription of an additional Rs. 3,000 crore, making the total issue size to be Rs. 3,500 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 9.50% p.a. for a period of 120 months (10 years), 9.30% p.a. for 96 months (8 years), 9.15% p.a. for 60 months (5 years) and 9.05% p.a. for 39 months (3.25 years). Interest will be paid only on an annual basis, as the company has not provided any other interest rate payment option.

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) – 20% of the issue i.e. Rs. 700 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 700 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 1,050 crore

Category IV – Resident Indian Individuals including HUFs – 30% of the issue is reserved i.e. Rs. 1,050 crore

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.

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 India Ratings have rated this issue as ‘AAA’ with a ‘Stable’ outlook. Also, these NCDs are ‘Secured’ in nature, except Series IV NCDs, the 120-months investment period option. Series IV NCDs are ‘Unsecured’ in nature.

Listing, Premature Withdrawal – These NCDs are proposed to get listed only on the Bombay Stock Exchange (BSE). The listing will take place within 6 working days after the issue gets closed. The investors will not have the option to prematurely redeem these NCDs back to the company, however 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 – As it is mandatory to have a demat account to apply and get these NCDs allotted, no tax would get deducted at source on the interest payments. However, as the interest income is taxable, you are supposed to disclose it while filing your ITR. Moreover, in case you decide to close your demat account, you can get these NCDs rematerialised. So, if held in physical form and annual interest income is more than Rs. 5,000, TDS @ 10% will get deducted.

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 Mahindra & Mahindra Financial Services 9.50% NCDs?

The ongoing trade war between the US and China has resulted in a lot of volatility in the financial markets worldwide. Investors have also turned cautious with respect to the economic growth prospects of both these countries. Considering a high probability of these two major economies getting slower in 2019, interest rates are also expected to go down following some dovish measures expected to be taken by the central banks worldwide, including India.

So, it creates a base case in favour of some of the good fixed income investments yielding high returns at present. Do these NCDs fall in that category of attractive fixed income investments? I would say ‘Yes’, if you are a relatively conservative investor, and considering these NCDs are ‘AAA’ rated. As these NCDs are carrying higher interest rates as compared to the bank fixed deposits, they seem relatively attractive to invest in.

However, considering that ECL Finance and SREI Equipment Finance are offering 10%+ returns on their respective NCDs, I would say interest rates offered by Mahindra are on a lower side for my expectations. I would rather wait for the NHAI to launch its bonds issue sometime this month and announce its interest rates, which I expect should be closer to 9% for a 10-year option.

Application Form of Mahindra & Mahindra Financial Services 9.50% 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 Mahindra & Mahindra Financial Services NCDs, you can contact us at +91-9811797407

24 thoughts on “Mahindra & Mahindra Financial Services 9.50% NCDs – January 2019 Issue

  1. Shiv, as always thank you for these regular insights. If possible, could you please share your views on the NCDs launched by STFC also.

  2. I am told that the 10-year NCD is ‘unsecured’.
    Please clarify on this.
    Second, investor category-wise interest is the same or different?

    1. Hi Kamal,
      Yes, you are right, the 10-year option is ‘Unsecured’ in nature. Moreover, category I & II investors will have a slightly lower rate of interest. I have updated the post above with both these points.

  3. Thanks for your views. However, request early posting of such useful write-ups, so that investors have some time to make arrangements for subscription. Thank you again.

  4. Thank You ,Shiv for the advise. Will await NHAI Bond issue details. Is it worth considering DHFL Bonds in secondary market that have a good rating and beaten down face value ?

    1. Hi Vasu,
      I think the fear around DHFL defaulting on its debt payments is overdone. But, if there is a smoke somewhere, you should be cautious. It depends on your risk appetite whether you should invest in DHFL NCDs or not. If at all, I would rather invest in DHFL shares to get maximum out of this opportunity.

  5. can small investors invest NHAI Bond? Further what may be the interest rate? kindly tell us.
    With kind regards
    natarajan

    1. Hi Natarajan,
      Yes, small investors would be able to invest in NHAI bonds. Minimum investment is expected to be Rs. 10,000. Also, interest rates are expected to be in the range of 8.50% to 9%.

  6. Thank you for sharing this information, it was very helpful. Keep on sharing such information on more Investing options. And please share the information on NCDs by STFC too.

    Regards

  7. Hi Shiv,

    Thanks for posting the details. I couldn’t find your post on the NCDs of ECL Finance, Sriram Transport Finance or Srei Equipment Finance? Are they still open or subscribed and closed? Do you plan to post your analysis on these NCDs?

    If one has to make a choice between these 4 NCDs (M&M, ECL, Sriram Transport, Srei Equipment) – how would you rank them and on what parameters?

    Regards, CVS

    1. Hi CVS,
      We could not cover ECL Finance and SREI Equipment Finance NCD issues. But, we have posted STFC issue details now, you can it on the website.
      ECL issue stands closed now, rest 3 are open. Among them, I would prefer M&M, STFC and SREI Equipment Finance in that order of safety. However, SREI Equipment Finance is offering a higher rate of interest. So, the choice gets difficult. But, still I would prefer them in this order only.

  8. hi
    please help they says in Mahindra & Mahindra Financial Services Limited – NCD nri not allow to avail these benefit to invest then where the nri will go if they want to invest as RBI said nri allow to invest in ncd but depends on company , so the nri will come to know which NCD is good and they can invest on it
    is any ncd is upcoming

  9. Hi Shiv,

    What is current subscription status? Is it still active? Also, I learn that from Oct ’18 onwards, NCDs also can be applied through ASBA only. And some of the banks still do not list the Debt IPOs like NCDs under their section of IPO Application through ASBA.

    Are there any alternate ways (offline) to apply for NCDs?

    Thanks, CVS

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