Indiabulls Consumer Finance 11% NCDs – February 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

Indiabulls Consumer Finance Limited (ICFL) is launching its public issue of non-convertible debentures (NCDs) from Monday, 4th of February. The company wants to raise Rs. 3,000 crore from this issue, including the green-shoe option of Rs. 2,750 crore. These NCDs will carry interest rates in the range of 10.40% for 38 months and 11% for 60 months.

The issue is scheduled to close on March 4, unless the company decides to close the issue prematurely. The issue is rated ‘AA+’ by Brickwork Ratings and ‘AA’ by CARE.

Before we check how the issue looks from an investment point of view, let us take a look at some of its key features:

Size & Objective of the Issue – Base size of the issue is Rs. 250 crore, with an option to retain oversubscription of an additional Rs. 2,750 crore, making the total issue size to be 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.

Interest Rate on Offer, Effective Yield & Tenor of the Issue – The issue will carry coupon rate of 11% p.a. for a period of 60 months, 10.90% p.a. for 38 months and 10.75% p.a. for 26 months. These rates would be applicable for annual interest payment options only. Monthly interest payment option is also available with 38 months and 60 months, and coupon rates for these periods are 10.40% p.a. and 10.50% p.a. respectively.

ASBA Mandatory – Like equity IPOs, SEBI has made ASBA mandatory to apply for debt issues as well, effective October 1, 2018. So, you are no longer required to issue cheques to apply for these NCD issues. In case of physical applications, you need to sign on the application form as per your bank records.

Credit Rating & Nature of NCDs – CARE and Brickwork Ratings have been appointed as the credit rating agencies for this issue. While CARE has rated the issue as ‘AA’ with a ‘Stable’ outlook, Brickwork Ratings has rated it as ‘AA+’ with a ‘Stable’ outlook. Moreover, these NCDs are ‘Secured’ in nature.

NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Categories of Investors – The company has decided to categorise investors in the following four categories:

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

Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 600 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 900 crore

Category IV – Resident Indian Individuals including HUFs – 30% of the issue is reserved i.e. Rs. 900 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.

Minimum Investment – An investor needs to invest a minimum of Rs. 10,000 in this issue i.e. 10 NCDs worth Rs. 1,000 each.

Listing, Premature Withdrawal – These NCDs are proposed to get listed on both the stock exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchanges (NSE). The listing will take place within 6 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 exchanges.

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, 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.

Should you invest in Indiabulls Consumer Finance NCDs?

I’ll update this post soon.

Application Form of Indiabulls Consumer 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 Indiabulls Consumer Finance NCDs, you can contact us at +91-9811797407

18 thoughts on “Indiabulls Consumer Finance 11% NCDs – February 2019 Issue”

  1. 1) Will be grateful if you could please highlight at the very outset itself whether NCDs issue is SECURED or UNSECURED.

    2) Wish your post with recommendations is received well in advance of any IPOSubscription Issue, so as to be able to make arrangements.

    3) In case, more than one issue is ongoing currently, in which order of preference should investors subscribe to. This would beca great help.

    1. Hi S.K.,
      1. It is mentioned in the post that it is a ‘Secured’ issue.
      2. I do try to provide details as early as possible for me to do that.
      3. Order of preference is different for different investors, and depends on various factors including the investor’s existing investments with the same issuer. So, one size fit all won’t work here.

  2. Dear Shiv,

    Can you please express your opinion on the on-going crisis in DHFL ? AAA rated DHFL NCDs of Rs.1000 face value, are trading around Rs. 650. Do you think this company is also going IL&FS way ? Should investors sell their NCD holdings at this price, or there is a chance of recovery ? Your valuable guidance will help a lot of investors.

    If AAA rated companies are failing to meet their obligations, how can we trust the ratings ?

    Thanks
    TCB

    1. Hi TCB,
      It is really difficult to assess what exactly is happening with DHFL and what exactly will happen with it in the next 3-6 months. Only insiders privy to the higher management acts would really know what exactly happened with the company in the past and what all is happening right now. DHFL is primarily a housing finance company and I think its loans are relatively secured. So, I think it should not go the IL&FS way.

      Also, I do not encourage my clients to do anything in a panic. So, I am advising them to hold on to it as of now and closely monitor the DHFL developments. I think it should get sorted out with DHFL sooner than IL&FS. Moreover, I do not give much importance to these credit rating agencies for my personal debt investments.

  3. Dear Shiv ji,

    Thanks for the post. Just wondering as what is the reason for the companies launching so many NCDs in last 6-9 months and with coupon rates increasing with every other issue (various issues had coupon rates ranging from 9.15 to 11.00% now)- whereas the interest rates for other debt instruments (e.g. Bank Fixed Deposits) have not increased so significantly in the same period.

    Is it indicating desperation of these NBFCs to collect more and more money for continuing the business (and just delaying the disaster – e.g. IL&FS, DHFL…) ?? Is it so that, they are just borrowing new money to fulfill the obligations of the old debts?

    Though, like any other investor, I’m interested in investing where I get few % more returns, this pattern is creating apprehensions in my mind.

    What are your views?

    Regards, CVS

    1. Hi CVS,
      Yes, this could be one of the reasons that there are so many debt issues coming. It is natural for the companies to raise interest rates on offer when it is difficult to raise funds, or they need more funds than usual. Your apprehensions too are natural and should be there. HDFC, Kotak do not pay 11% on their debt instruments. Better the issuers, lower will be interest rates on offer. Greed & fear are our biggest enemies while making investments.

  4. Providing the obvious data about an NCD (such as opening date, closing date, FV, rating , categories etc..) is barely enough for a decision making. An insightful recommendation (if possible) based on in-depth analysis of published/un-published info about the issuer is what we need to decide. If ‘secured’ NCD is not secured enough to cover our principal+ interest, what is the use of it being ‘secured’. This is just a play and misuse of the word by the issuer and authorities to hoodwink gullible investors…

  5. Very nice and crisp analysis and explaination.
    As mentioned by some other readers, it would be a great service if:
    1. The analysis and recommendation is received a few days in advance so that arrangement of money/blank forms, etc can be made in time.
    2. If there is bunch of such issues, then, your recommendation on priority/preference basis so that one can make up his mind as to in which company’s issue to invest.

  6. 1) Dear Shiv, have the recent Mahindra Finance NCDs been listed yet? If so, can you please share the current price of the 3 year Annual Option NCD. Is it listed on BSE or NSE or both? Do you advise buying from the market?

    2) Despite recommendations to invest in the AAA issue of DHFL, the affair is becoming rather scary for senior citizens who have invested in DHFL.

    3) Shiv, can uou please state the pros & cons of investing in PMVVY scheme for senior citizens. Would you personally recommend investment in this scheme?

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