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
Shriram Transport Finance Company Limited (STFCL) is launching its public issue of non-convertible debentures (NCDs) from today, January 7, 2019. This will be the third public issue of NCDs by the company this financial year. The company plans to raise Rs. 700 crore from this issue, including the green shoe option of Rs. 500 crore.
These NCDs will carry coupon rates in the range of 9.12% per annum to 9.70% per annum, resulting in an effective yield of 9.39% p.a. to 9.70% p.a. for the investors. The issue is scheduled to close on January 31, 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. 200 crore, with an option to retain oversubscription of an additional Rs. 500 crore, making the total issue size to be Rs. 700 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 9.70% p.a. for a period of 10 years, 9.50% p.a. for 5 years and 9.40% p.a. for 3 years. These interest rates would be applicable for annual interest rate options only. Monthly interest payment option is also available for 5 years and 10 years, with coupon rates of 9.12% p.a. and 9.30% p.a. respectively. For 3 years and 5 years, cumulative interest payment option is also there, with an effective yield of 9.40% and 9.50% respectively.
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. 70 crore
Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 70 crore
Category III – High Net Worth Individuals (HNIs) including HUFs – 40% of the issue is reserved i.e. Rs. 280 crore
Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 280 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 – CRISIL and India Ratings have rated this issue as ‘AA+’ with a ‘Stable’ outlook. Also, these NCDs are ‘Secured’ in nature.
Listing, Premature Withdrawal – These NCDs are proposed to get listed on both the stock exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). 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 any of the stock exchanges.
ASBA Mandatory – Like equity IPOs, SEBI has made ASBA mandatory to apply for these debt issues also effective October 1, 2018. So, no cheque would be required to apply for these NCDs now.
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 rematerialised and held in physical form after the allotment, and if the annual interest income is more than Rs. 5,000, TDS @ 10% will be 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 Shriram Transport Finance 9.70% NCDs?
There has been a considerable volatility in the stock markets, as well as the bond markets in the past 4-5 months. Market volatility is expected to continue in 2019 as well. So, the conservative investors are advised either to avoid the equity investments at least for the next 6 months or so, or invest in equities in a phased manner.
As far as fixed income investments are concerned, I expect the interest rates to remain range bound with a downward bias for the next 6 months or so. Post that, I think it would primarily depend on two factors – one, the elections outcome in May this year, and the other, macro economic outlook for India as well as China and the US.
As mentioned above as well, this is the third public issue by Shriram Transport Finance in the current financial year. Interest rates offered by the company in this issue are exactly the same as they were in the second issue of October 2018, and slightly higher than the first issue of June 2018. Still, I find these rates to be on a lower side of my expectations from a private company. I would have liked the company to offer 10%+ coupon rate for the 3-year or 5-year investment period option. Again, as the interest rates expected to be offered by the NHAI in the range of 8.50% and 9% for a period of 5 years to 10 years, I would like to consider the NHAI issue first before committing my funds elsewhere.
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 STFC NCDs, you can contact us at +91-9811797407