NHAI Taxable Bonds – 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

2018 so far has turned out to be a roller coaster year for the equity, as well as the bond markets. Mid and small cap companies have seen a massive cut in their stock prices. Portfolios have seen a massive value erosion and sentiment has once again turned negative. Market analysts, who were recommending a higher allocation to equity till early this year, have also become cautious to advise higher equity investments. Some analysts are calling it start of a bearish phase.

Debt portion of portfolios are also facing the music. Bond yields have undergone huge volatility amid dynamic economic conditions and highly uncertain borrowing programme of the government. Overall, bond yields have risen so far in 2018. However, conservative investors haven’t got the opportunity to enjoy such high rates on their fixed deposits. Fixed deposit rates are still below 8-8.5% with most of the banks. Post the IL&FS and DHFL crisis, private NBFCs are finding it difficult to raise money from the debt markets.

In such a dynamic economic environment, as the investors want to opt for safer investment options, NHAI is soon coming up with its maiden public issue of taxable bonds for the retail investors. NHAI has already filed its draft shelf prospectus with SEBI on November 16, 2018, so the issue is expected to open in the first fortnight of December.

NHAI is yet to announce the key details of the issue, like launch date, rate of interest, duration of the bonds etc. The company wants to raise Rs. 10,000 crore from this issue and plans to utilize these funds to finance its ambitious Bharatmala Project.

I’ll update this post as the company announces further details. Here you have some of the salient features of the issue.

Size of the Issue – NHAI announced its plans to raise Rs. 62,000 crore through debt issuance this financial year. It has already raised approximately Rs. 29,000 crore by issuing bonds to the institutional investors on a private placement basis. Out of the remaining Rs. 33,000 crore, the company has decided to raise Rs. 10,000 crore from this issue.

Coupon Rates on Offer – The company is yet to announce the interest rates it is going to offer in this issue. However, the market speculation is that the company will offer rates between 8.50% to 9% per annum for a period of 3 years to 10 years. I’ll update this post as the company discloses its rates.

Rating of the Issue – CRISIL, ICRA, CARE and India Ratings, all rating agencies have assigned ‘AAA’ rating to this issue. Also, these bonds are ‘Secured’ in nature i.e. in case of any default in interest payments or principal repayment at the time of maturity, the bondholders will have the right to make claim on certain assets of the company.

NRI/QFI Investment Not Allowed – Like with most such recent NCD issues, Non-Resident Indians (NRIs) will not be able to make investments in this issue. Qualified Foreign Investors (QFIs) too are not eligible to invest in this issue.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and the company is yet to announce what percentage of the issue will be reserved for each of the categories during the allocation process:

Category I – Qualified Institutional Bidders (QIBs)

Category II – Non-Institutional Investors (NIIs)

Category III – High Net Worth Individuals, including HUFs, investing more than Rs. 10 lakhs

Category IV – Resident Indian Individuals, including HUFs, investing up to Rs. 10 lakhs

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 & Allotment – Like its previous issues, NHAI has decided to get its bondss listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE). NHAI will ensure that these bonds get allotted and listed on the stock exchanges within 6 working days from the closing date of the issue.

Demat A/c. Mandatory – Off late, these companies are making it impossible to apply for such bonds in physical/certificate form, and NHAI is no different. It has also made it mandatory to have a demat account in order to apply for these bonds. However, if you get these bonds allotted in your demat account, you will have the option to rematerialise them later in physical/certificate form if you decide to close your demat account.

No Lock-In Period – These bonds do not carry any lock-in period and you can buy/sell them on the stock exchanges at the market price whenever you want.

Loan Against Bonds – These bonds can be pledged or hypothecated for obtaining loans as per the terms set by the lending company.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 10,000 in this issue i.e. at least 10 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and the probability of full allotment is lower in the HNI category.

Interest Payment Date – NHAI is yet to announce the interest payment date for these bonds.

Record Date – For the payment of interest or the maturity amount, record date will be 15 days prior to the date on which such amount is due to be payable.

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

Manappuram Finance 10.40% NCDs – October 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

Manappuram Finance Limited is going to launch its public issue of secured non-convertible debentures (NCDs) from today, October 24, 2018. The company plans to raise Rs. 1,000 crore from this issue, including the green shoe option of Rs. 800 crore.

These NCDs will carry coupon rates in the range of 9.60% to 10.40%, resulting in an effective yield of 9.70% to 10.46% for the investors. The issue is scheduled to close on November 24, unless the company is able to raise the desired amount before that and decides to close the issue prematurely.

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. 800 crore, making the total issue size to be Rs. 1,000 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.

Coupon Rate & Tenor of the Issue – The issue will carry coupon rate of 10.40% p.a. for a period of 60 months, 10% p.a. for 36 months and 9.85% p.a. for 24 months. These rates would be applicable for annual interest payment and cumulative interest options only. Monthly interest payment option is available only with 36 months and 60 months tenors, and coupon rates for these periods would be 9.60% p.a. and 10% p.a. respectively.

There are two more options – one is for 400 days offering 9.70% effective yield and the other offers to double your money in 2,557 days, i.e. approximately 7 years, giving an effective yield of 10.40%.

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ASBA Mandatory – Like IPOs, SEBI has made ASBA mandatory to apply for these debt issues also effective October 1. So, no cheque would be required to apply for these NCDs.

Credit Rating & Nature of NCDs – CARE and Brickwork Ratings have rated this issue as ‘AA’ and ‘AA+’ respectively with a ‘Stable’ outlook. Moreover, these NCDs are ‘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. 100 crore

Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 100 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 300 crore

Category IV – Resident Indian Individuals including HUFs – 50% 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 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.

Application Form of Manappuram 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 Manappuram NCDs, you can contact us at +91-9811797407

Shriram Transport Finance 9.70% Non-Convertible Debentures (NCDs) – October 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 skukreja@investitude.co.in

Shriram Transport Finance Company Limited (STFC) is launching its public issue of non-convertible debentures (NCDs) from the coming Monday, October 15, 2018. This will be the second public issue by the company in the current financial year. The company plans to raise Rs. 1,350 crore from this issue, including the green shoe option of Rs. 1,050 crore.

These NCDs will carry coupon rates in the range of 9.12% to 9.70%, resulting in an effective yield of 9.39% to 9.70% for the retail individual investors. The issue is scheduled to close on October 29, unless the company decides to close it prematurely.

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. 300 crore, with an option to retain oversubscription of an additional Rs. 1,050 crore, making the total issue size to be Rs. 1,350 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 rates would be applicable for annual interest payment and cumulative interest options only. Monthly interest payment option is available only with 5 years and 10 years tenors, and coupon rates for these periods would be 9.12% p.a. and 9.30% p.a. respectively.

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0.25% Additional Coupon for Senior Citizens – Like its previous issue, the company has decided to offer an additional coupon of 0.25% p.a. to the senior retail investors, as well as senior HNI investors, who would hold these NCDs on the relevant record date for the purpose of interest payment.

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. 135 crore

Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 135 crore

Category III – High Net Worth Individuals (HNIs) including HUFs – 40% of the issue is reserved i.e. Rs. 540 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 540 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. Moreover, these NCDs will be ‘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). As against 12 working days earlier, these NCDs will get listed on the exchanges within 6 working days after the issue gets closed. Moreover, there is no option of a premature redemption, and the investors would be required to sell these NCDs on either of the stock exchanges in order to encash these NCDs before maturity.

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.

ASBA Mandatory – Like IPOs, SEBI has made ASBA mandatory to apply for debt issues as well effective October 1. So, writing cheques would become history now in applying for these debt instruments.

TDS – Though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return. 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 – STFC 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 NCDs?

Indian financial markets are in turmoil, and it all started with IL&FS and DHFL, along with high crude prices and a weaker Indian Rupee. In the last nine months or so, most of the investors have lost their hard earned money in almost all the asset classes, be it equity, or debt, or real estate, or gold, or currency (read INR and crypto currencies). Though I consider bank fixed deposits to be one of the most unattractive financial investments, I believe people who invested in bank FDs must have been the happiest of the lot during this same period.

And, at this moment, most of the retail investors are scared of investing their investible surplus in any of the volatile asset classes, and want to keep it in safe havens as much as possible. When ‘AAA’ rated NCDs of companies like DHFL are trading at an yield of 10% or more, then why a person would like to invest in NCDs of a ‘AA+’ rated company at a lower effective yield of 9.40% to 9.70%? Personally, I would not.

But, I still believe that things are not as bad as they seem to be at this moment, and Shriram Transport Finance is a fundamentally sound company with a good management. At the same time, the interest rates offered by a private company in this issue are not attractive enough for me to put my money. So, if you are not liable to pay any tax on your total income or fall in the 10% or 20% tax bracket, or if you are a brave investor with a reasonable confidence on STFC’s business prospects and its management, then only you should invest in these NCDs for the shortest period possible, with either monthly or annual interest payment option.

Application Form of Shriram Transport 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 STFC NCDs, you can contact us at +91-9811797407

Indiabulls Commercial Credit Limited 9.20% NCDs – September 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

Indiabulls Commercial Credit Limited (ICCL) has launched its public issue of secured redeemable non-convertible debentures (NCDs) from today, September 11, 2018. The issue is rated ‘AAA’ by the rating agencies CRISIL and CARE and will carry an effective annual rate of 9.20% for 10 years, 9% for 5 years, 8.90% for 3 years and 8.80% for 2 years.

The company plans to raise Rs. 2,000 crore from this issue, including a green-shoe option of Rs. 1,000 crore. The issue is scheduled to close on September 28, unless the company decides to foreclose it in case of oversubscription.

As we take a decision to invest in this issue or not, let us first have a look at its salient features.

Size & Objective of the Issue – Base size of the issue is Rs. 1,000 crore and the company will have the right to exercise the green-shoe option to raise an additional Rs. 1,000 crore in case of oversubscription, thus making it a Rs. 2,000 crore issue. The company plans to use at least 75% of the issue proceeds for its lending activities and to repay its existing loans and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – The company is issuing these NCDs for a period of 2 years, 3 years, 5 years and 10 years. These NCDs will yield you a return of 8.80% to 9.20%, with monthly, annual and cumulative interest payment options. Monthly interest payment option will carry a lower coupon rate as compared to the annual interest payment option. You can check the differential interest rates in the table below.

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Minimum Investment – Investors need to apply for a minimum of 10 NCDs in this issue with face value Rs. 1,000 each i.e. an investment of Rs. 10,000 at least.

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. 200 crore

Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 200 crore

Category III – High Net-Worth Individuals (HNIs) – 40% of the issue i.e. Rs. 800 crore

Category IV – Retail Individual Investors (RIIs) – 40% of the issue i.e. Rs. 800 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 CARE have rated this issue as ‘AAA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature for all the investment periods, i.e. 2 years, 3 years, 5 years and 10 years.

Listing, Premature Withdrawal Option – These NCDs will get listed on both the stock exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The listing will take place within 12 working days after the issue gets closed. As there will be no option of a premature redemption, the investors can always sell these bonds 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.

TDS – Though the interest income would be taxable with these bonds, NCDs held in demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return.

Financials of Indiabulls Commercial Credit Limited

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Indiabulls Commercial Credit has done an excellent job in growing its assets under management (AUM) from a mere Rs. 1,718 crore in FY 2016 to Rs. 8,264 crore in FY 2018, a CAGR of 119.32% and also its profit after tax from Rs. 50.55 in FY 2016 to Rs. 254.90 crore, a CAGR of 124.56%.

Moreover, it has improved on its asset quality as well. From a high of 2.25% of gross NPAs and 1.76% of Net NPAs in FY 2016, the company has been able to reduce both of these numbers to 0.60% and 0.40% respectively in FY 2018.

Should you invest in Indiabulls Commercial Credit Limited NCDs?

As compared to Tata Capital Financial Services, Indiabulls NCDs would yield 0.10% higher on an yearly basis. However, despite its healthy financials, investors would have more confidence in Tata Capital NCDs as compared to Indiabulls. As I expressed my views for the Tata Capital issue, this issue too carries coupon rates which do not attract me as an investor. I consider these coupon rates, offered by a private company, to be below my expectations.

Again, investors who understand mutual funds, should invest in gilt funds or other debt funds as compared to these NCDs with lower yield. However, conservative investors can consider investing in these NCDs, as it is not easy to find many ‘AAA’ rated issues these days offering coupon rates higher than the bank FDs.

Investors, who fall in the lower tax brackets and are looking for relatively safer options to invest their investible surplus, can think of investing in this issue. Again, I think one should go for the shortest possible time period to invest with a private company. So, either a 2-year option, or 3-year option, or 5-year option should be preferred to invest in these NCDs.

Application Form – Indiabulls Commercial Credit 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 NCDs, you can reach us at +91-9811797407

Tata Capital Financial Services 9.10% Non-Convertible Debentures (NCDs) – September 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

Tata Capital Financial Services Limited (TCFSL) is launching its public issue of secured redeemable non-convertible debentures (NCDs) and unsecured subordinated redeemable NCDs from the coming Monday, September 10, 2018. The issue is rated ‘AAA’ by the rating agencies CRISIL and CARE and will carry an effective annual rate of 9.10% for 10 years, 8.90% for 5 years and 8.80% for 3 years.

The company aims to raise Rs. 7,500 crore from this issue, including a green-shoe option of Rs. 5,500 crore. The issue is scheduled to close on September 21, but in case of oversubscription, the company will have the option to foreclose it.

Before we dig further to find out if the issue is worth investing, let us first check some of the key features of this issue.

Size & Objective of the Issue – Base size of the issue is Rs. 2,000 crore and there is a provision for the company to exercise the green-shoe option to raise an additional Rs. 5,500 crore in case of oversubscription, thus making it a Rs. 7,500 crore issue. The company plans to use at least 75% of the issue proceeds for its lending activities and to repay its existing loans and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – As mentioned above, the company is issuing these NCDs for a period of 3 years, 5 years and 10 years. These NCDs will carry coupon rates in the range of 8.80% to 9.10%, with annual interest payment as the only interest payment option.

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Unsecured, Subordinated 10-Year Option – NCDs issued for a period of 10 years would yield you 9.10% on an annual basis, but would also be unsecured and subordinated in nature. That would mean the investors of these NCDs will have no or fewer rights to seek compensation by selling certain assets of the company in case it defaults on its regular interest payments and/or principal repayment.  

Minimum Investment – Investors need to apply for a minimum of 10 NCDs in this issue with face value Rs. 1,000 each i.e. an investment of Rs. 10,000 at least.

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 – Institutional Investors – 20% of the issue i.e. Rs. 1,500 crore

Category II – Non-Institutional Investors – 20% of the issue i.e. Rs. 1,500 crore

Category III – High Net-Worth Individuals (HNIs) – 30% of the issue i.e. Rs. 2,250 crore

Category IV – Retail Individual Investors (RIIs) – 30% of the issue i.e. Rs. 2,250 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 CARE have rated this issue as ‘AAA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature for a period of 3 and 5 years, and ‘Unsecured’ in nature for 10 years.

Listing, Premature Withdrawal Option – These NCDs will get listed on both the stock exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The listing will take place within 12 working days after the issue gets closed. As there will be no option of a premature redemption, the investors can always sell these bonds 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.

TDS – Though the interest income would be taxable with these bonds, NCDs held in demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return.

Should you invest in Tata Capital Financial Services NCDs?

India has clocked 8.2% GDP growth in the first quarter of the current financial year, and with rising crude prices, 10-year bond yield has again jumped to cross the psychological mark of 8%. So, in a rising bond yield scenario, investors expect banks and companies to offer higher interest rates on their deposits.

However, the company has decided to offer even lower interest rates than offered by the companies in the last six months or so, probably because it has been rated ‘AAA’ by the rating agencies and the brand name of Tata behind it.

I consider these coupon rates offered by a private company to be below my expectations. One can consider investing in gilt funds or other debt funds as compared to these low-yield NCDs. However, conservative investors can consider investing in these NCDs, as it is not easy to find many ‘AAA’ rated issues these days offering coupon rates higher than the bank FDs.

Investors, who fall in the lower tax brackets and are looking for relatively safer options to invest their investible surplus, can think of investing in this issue. Again, I think one should go for the shortest possible time period to invest with a private company. So, either a 3-year option or 5-year option should be chosen to invest in these NCDs.

Application Form – Tata Capital Financial Services 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 Tata Capital NCDs, you can reach us at +91-9811797407

HDFC AMC IPO Review – Should You Invest or Not @ Rs. 1,095-1,100?

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

HDFC AMC IPO Details

Here are some other important dates as the issue gets closed on July 27:

Finalisation of Basis of Allotment – On or about August 1, 2018

Initiation of Refunds – On or about August 2, 2018

Credit of equity shares to investors’ demat accounts – On or about August 3, 2018

Commencement of Trading on the NSE/BSE – On or about August 6, 2018

Financials of HDFC AMC

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Should you invest in HDFC AMC IPO or Not @ Rs. 1,100?

Reliance Nippon Asset Management Ltd. (RNAM) is currently the only asset management company listed on the stock exchanges. Its IPO came in the last week of October 2017 at a price of Rs. 252 a share. It touched a high of Rs. 335 on January 16, 2018, a low of Rs. 205.35 on June 1, 2018 and is currently trading at Rs. 235.75. At Rs. 235.75 a share, the company has a market cap of Rs. 14,394 crore and its price/earnings (P/E) ratio currently stands at 26.3 times. The company generates an RoE of 22% for its shareholders.

In comparison, HDFC AMC IPO is priced at Rs. 1,100 a share. At this price, the company will have a market cap of Rs. 23,319 crore and P/E ratio of 31.46 times based on its trailing twelve months EPS. The company generates an RoE of 33.41% for its shareholders. Also, HDFC AMC is the industry leader in equity-oriented funds, having 51% of its AUM in equities as against 42% industry average. Having 51% of its AUM in equities helps HDFC AMC earn higher management fee for managing these funds. Such high profitability and focus on garnering investors’ money for its high margin schemes justify its rich valuations vis-a-vis Reliance AMC, based solely on the fundamentals attributes of both the companies.

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However, the biggest factor, that makes investors avoid investing in ADAG group companies, is the quality of their management and the legacy of their actions that have led to the downfall of many of their group companies and the resulting destruction in shareholders wealth.

On the other hand, the biggest factor, that differentiates HDFC group companies from their respective industry peers and command a premium in valuations, is the quality of their management and the legacy of their actions that have resulted in a phenomenal growth of all its group companies and the resulting healthy growth in shareholders wealth.

Despite of a poor performance of many of its schemes in the last 2-3 years, I expect HDFC AMC to keep growing its business at a healthy pace and maintain its leadership in equity oriented schemes for a long period of time. At Rs. 1,100 a share, I have a view that HDFC AMC is fairly valued, but still leaves a scope of money to be made on listing, and also due to long term sustainable growth in business and profitability.

For many of us, HDFC’s year on year consistent growth of 20%+ has been a matter of a case study. So, if 20% is a magical number for the HDFC group companies, then I would expect a 20% listing gain here too with this HDFC group company.

HDFC AMC IPO Details – Price Band Rs. 1095-1100

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

The initial public offer (IPO) of India’s second largest asset management company, HDFC Asset Management Company Ltd (HDFC AMC), is getting opened for subscription from today, July 25. HDFC AMC is the 56.97% subsidiary of HDFC Limited, while HDFC’s JV partner Standard Life owns around 37.98% in the company. This IPO is a 100% offer for sale (OFS) of around 2.55 crore equity shares by these promoters.

The company has fixed its price band in the range of Rs. 1,095-1,100 a share and no discount has been offered to the retail investors. The offer would constitute 12.01% of the company’s post-offer paid-up equity share capital. The issue will remain open for the next three days to close on July 27.

Here are some of the salient features of this issue:

Size of the Issue – This IPO is a 100% offer for sale (OFS) of 2,54,57,555 shares by the JV partners, HDFC Limited and Standard Life. This makes it a Rs. 2,800 crore IPO at the upper end of the price band i.e. Rs. 1,100. HDFC Limited and Standard Life are selling 85,92,970 and 1,68,64,585 of their shares respectively in this IPO. Post this IPO, HDFC will hold 52.92% stake and Standard Life will have 30.03% stake in the company.

Price Band – HDFC AMC has fixed its IPO price band to be between Rs. 1,095-1,100 a share and the company has decided not to offer any discount to the retail investors.

Retail Allocation – 35% of the issue has been reserved for the retail individual investors (RIIs), 15% for the non-institutional investors (NIIs) and the remaining 50% shares will be allocated to the qualified institutional buyers (QIBs).

No discount for Retail Investors or Employees – The company has decided not to offer any discount to any of its investors or to its employees either.

Bid Lot Size & Minimum Investment – Investors need to bid for a minimum of 13 shares in this offer and in multiples of 13 shares thereafter. So, a retail investor would be required to invest a minimum of Rs. 14,300 at the upper end of the price band and Rs. 14,235 at the lower end of the price band.

Maximum Investment – Individual investors investing up to Rs. 2 lakh are categorised as retail individual investors (RIIs). As a retail investor, you can apply for a maximum of 13 lots of 13 shares each @ Rs. 1,100 a share i.e. a maximum investment of Rs. 1,85,900. At Rs. 1,095 per share, you can apply for a maximum of 14 lots of 13 shares, thus making it Rs. 1,99,290.

Listing – The shares of the company will get listed on both the stock exchanges i.e. National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) within 6 working days after the issue gets closed on July 27. Thus, these shares are expected to get listed on the stock exchanges by August 6.

Here are some other important dates as the issue gets closed on July 27:

Finalisation of Basis of Allotment – On or about August 1, 2018

Initiation of Refunds – On or about August 2, 2018

Credit of equity shares to investors’ demat accounts – On or about August 3, 2018

Commencement of Trading on the NSE/BSE – On or about August 6, 2018

Financials of HDFC AMC

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(Note: Figures are in Rs. Crore, except per share data & percentage figures)

Should you invest in HDFC AMC IPO or Not @ Rs. 1,100?

I will update this post soon with HDFC AMC IPO Review.

Edelweiss’ ECL Finance 9.85% NCDs – July 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

ECL Finance Limited, one of the finance arms of the Edelweiss Group, is launching its public issue of secured and redeemable non-convertible debentures (NCDs) from today, July 24, 2018. The issue will carry an effective annual rate of 9.85% for 10 years, 9.65% for 5 years and 9.45% for 3 years.

The company aims to raise Rs. 2,000 crore from this issue, including a green-shoe option of Rs. 1,500 crore. The issue is scheduled to close on August 16, but in case of oversubscription, the company will have the option to foreclose it.

So, before we take a decision whether to invest in this issue or not, let us first check its salient features.

Size & Objective of the Issue – Base size of the issue is Rs. 500 crore and total issue size is Rs. 2,000 crore including the green shoe option of Rs. 1,500 crore. The company plans to use at least 75% of the issue proceeds for its lending activities and to repay its existing loans and up to 25% of the proceeds for general corporate purposes.

Coupon Rate & Tenor of the Issue – As mentioned above, the company is issuing these NCDs for a period of 3 years, 5 years and 10 years. Moreover, these NCDs will carry coupon rates in the range of 9.25% to 9.85% with monthly, annual and cumulative interest payment options.

There is a floating interest rate option as well, in which the interest rate will be reset on a periodic basis as per MIBOR. The company has decided to offer a spread of 2.50% over MIBOR with this option and the rate will be reset on an annual basis.

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Minimum Investment – Investors need to apply for a minimum of 10 NCDs in this issue with face value Rs. 1,000 each i.e. an investment of Rs. 10,000 at least.

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 – Institutional Investors – 20% of the issue i.e. Rs. 400 crore

Category II – Non-Institutional Investors – 20% of the issue i.e. Rs. 400 crore

Category III – High Net-Worth Individuals (HNIs) – 30% of the issue i.e. Rs. 600 crore

Category IV – Retail Individual Investors (RIIs) – 30% of the issue i.e. Rs. 600 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 ICRA have rated this issue as ‘AA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature.

Listing, Premature Withdrawal Option – These NCDs will get listed on both the stock exchanges i.e. Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). The listing will take place within 12 working days after the issue gets closed. As there will be no option of a premature redemption, the investors can always sell these bonds 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.

TDS – Though the interest income would be taxable with these bonds, NCDs taken in demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return. TDS @ 10% will be deducted if these NCDs are held in physical/certificate form and annual interest income is more than Rs. 5,000.

Should you invest in ECL Finance NCDs?

During 2013-14 and 2014-15, ECL Finance came out with three of its NCD issues offering 12.52% p.a. for 60 months, 12.68% p.a. for 70 months and 10.64% p.a. for 60 months. But, those were times of high interest rates and it seems the scenario has changed somehow. Corporate issuers are not offering high rate of interest now and that is a new normal these days.

As none of the issuers in the recent times has offered 9.85% coupon, this issue by far is carrying the highest coupon rate. In March 2018, Edelweiss Retail Finance in its public issue of NCDs offered 9.25% for 10 years, 9% for 5 years and 8.75% for 3 years. So, ECL Finance is offering attractive interest rates relatively.

But, then this issue is rated ‘AA’, lower than all the previous issues of the recent times. Edelweiss Retail Finance issue was also rated ‘AA’ Stable by CRISIL and ICRA. So, the conservative investors, who go by credit ratings of such issues, might prefer to avoid this issue and wait for a higher rated issue. You also need to make a decision whether you want to have a relatively higher rate of interest with a slightly lower credit rating, or just skip it and wait for a better issue.

Investors, who fall in lower tax brackets and are looking for relatively higher interest rates to deploy their investible surplus, can think of investing in this issue. However, even if you decide to invest in this issue, I would advise you to go for a shorter possible duration and monthly interest payment option.

Application Form – ECL 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 ECL Finance NCDs, you can reach us at +91-9811797407

Computation of Tax on Gains from Futures & Options (F&O) Trading

This post is written by CA Karan Batra, who is the Founder and CEO of Chartered Club. He can be reached at mrkaranbatra@gmail.com

The Gains from trading in Future and Options (F&O) are not considered as Capital Gains but are considered as Business Income. These gains are considered as non-speculative business gains and therefore income tax on these gains is levied as per the income tax slab rates.

To levy income tax – the first thing which is required to be done is computation of income. Once the income is computed, the tax would be levied on the income so computed. The lower the income, the lower is the tax payable and the higher the income, the higher is the tax payable.

There are 2 ways to compute the Income from F&O Trading:-

  1. Normal system of computation i.e. Income = Sales – Purchase – Other Expenses – Depreciation
  2. Presumptive system of computation i.e. Income = Assumed percentage of Sales

These 2 systems have been explained below in detail.

Normal System of Taxation

Under the normal system of taxation, the income is computed as per the following formula:

Income = Sales – Purchase – Other Expenses – Depreciation

This can be explained with the help of an example.

Example: During the complete year 2017-18, Mr. A traded in Nifty several times. His total purchases were worth Rs. 70 lakhs and Sales were 80 lakhs. Apart from these, he also incurred several expenses related to his business which are:-

  1. Subscription plan for receiving stock market tips: Rs. 3,000
  2. Telephone and internet expenses: Rs. 20,000
  3. Salary paid to employee(s): Rs. 2,00,000
  4. Fee paid to CA for tax return filing: Rs. 10,000
  5. Other business expenses: Rs. 15,000

Therefore, his total other expenses are Rs. 2,48,000 (Rs. 2,00,000 + Rs. 20,000 + Rs. 3,000 + Rs. 10,000 + Rs. 15,000)

In addition, the depreciation on assets during the year was Rs. 1,25,000

In this case, the Income of Mr. A would be as follows:-

Income = Rs. 80,00,000 – Rs. 70,00,000 – Rs. 2,48,000 – Rs. 1,25,000

               Rs. 6,27,000

Under this system, the income is computed on actual basis and the taxpayer is required to maintain a record and invoice for each and every expense which he has made. Moreover, he is also required to maintain all the books of accounts, Profit & Loss A/c. as well as the Balance Sheet.

It gets very difficult for a small business owner to maintain so many records and to keep a copy of all the invoices.

Therefore, for small traders – there is another option wherein no records are required to be maintained and the tax is to be paid on an assumed basis. This scheme is called Presumptive Tax and is explained below.

Presumptive Scheme of Taxation – Section 44AD

Under the Presumptive scheme of taxation, the law gives the small traders an option to declare his income as a percentage of total turnover.

The law says that the small trader can disclose his income at any level above 6% of Turnover. The small trader would be required to disclose his total turnover and the income which he would like to disclose (Min 6%). Earlier the minimum required to be disclosed was 8% but this was reduced to 6% from Financial Year 2016-17 onwards. As the payment is always received in bank in case of F&O Transactions, they can disclose the income as 6% of Turnover.

In case the small trader feels that his income is less than 6%, he would be required to shift to the Normal Scheme of Taxation and prepare all books of accounts and keep copies of all invoices.

The presumptive scheme of tax is only applicable to traders whose annual turnover is less than Rs. 2 Crores.

However, in case of F&O Trading, as the value of contracts traded is huge – the manner of computation is a bit different and the same has been explained below.

Computation of Turnover in case of F&O Transactions

In case of F&O transactions, the total of all contracts sold would not be considered as the total turnover.

In case of F&O transactions – the turnover would be computed by taking into account the total of all favourable and unfavourable trades. This can be explained with the help of the following example:-

Mr. B enters into the following 2 transactions during the year:-

  1. Purchased 1 Lot of Nifty for Rs. 8,00,000 and sells the same for Rs. 8,50,000, thereby earning a profit of Rs. 50,000.
  2. Purchased 1 Lot of Reliance Industries for Rs. 9,50,000 and sold for Rs. 9,40,000, thereby incurring a loss of Rs. 10,000.

In the above case, the total turnover would be considered as Rs. 60,000.

Which of the above 2 systems is better?

The normal scheme of taxation may turn out to be better in some cases whereas Presumptive Scheme of taxation may turn out to be better in other cases.

Therefore, it is very difficult to state which option is better. The trader should himself assess as to which system is better for him.

In case you have any query regarding the tax treatment of F&O trading, or you have any special case of F&O trading gain/loss, please share it share. It might help other investors or tax-payers to get their issues resolved.