SREI Infrastructure Finance Limited will be coming out with its third public issue of non-convertible debentures (NCDs) this financial year from Monday, December 30th. The issue will compete with Muthoot’s 12.25% NCDs issue and Manappuram’s 12.50% NCDs issue seeking investors’ investments.
Despite of the fact that interest rates have been rising steadily, SREI Infra has not increased its coupon rates for the retail investors since it last came out with such NCD issue in August this year. It is going to offer a maximum of 11.75% per annum to the individual investors for a 5 years tenure.
It will be a month long issue which is scheduled to close on January 31, 2014, but the company has the right to preclose it if it gets oversubscribed beyond Rs. 100 crore or extend it further if it doesn’t get subscribed by the last day of the next month.
Size of the Issue – The company wants to raise Rs. 100 crore from this issue and there is no green-shoe option provision with the company this time around.
Ratings & Nature of NCDs – CARE has assigned ‘AA-’ rating to this issue with a ‘Stable’ outlook, whereas Brickwork Ratings has given it a ‘AA’ rating. The issue stands superior to both Muthoot issue as well as Manappuram issue ratings-wise. Also, these NCDs would stand ‘Secured’ in nature.
Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and each category will have the below mentioned percentage fixed in the allotment:
Category I – Institutional Investors – 20% of the issue is reserved
Category II – Non-Institutional Investors – 20% of the issue is reserved
Category III – Individuals Investors including HUFs – 60% of the issue is reserved
NCDs will be allotted on a first come first served basis.
NRI Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.
Interest Rates on Offer – As you can check from the table below, the rates SREI has decided to offer are lower as compared to the rates Muthoot and Manappuram are offering in their respective NCDs issue. But then it carries a better rating also. It will offer 11.25% p.a. with the 2-year option, 11.50% with the 3-year option and 11.75% p.a. with the 5-year option.
There is one diminishing coupon rate option as well which will provide 12.50% interest rate in the first year, 12% in the second year, 11.50% in the third year and 11.25% p.a. in the fourth & fifth years. Effectively it would be 11.77% p.a. which is close to 11.75% p.a. with the other 5-year option.
Institutional and non-institutional investors will get 0.25% p.a. lower coupon rates.
SREI has decided to skip the “Double Your Money” option which it carried in its last issue and Muthoot and Manappuram both are offering currently to attract the investors.
Unique Feature of the Issue – SREI has decided to reward its current shareholders, bondholders and NCD holders in its own unique way in this issue. Individual investors who invest in this issue and who are holders of NCDs/bonds previously issued by SREI Infra in its past public issues and/or are equity shareholders of SREI Infra on the deemed date of allotment, will be eligible for an additional coupon of 0.25% p.a. with Series I, III, V, VI and VII.
NCD holders, in case of series II and IV, will get Rs. 1,249 and 1,396 respectively as the redemption amount per bond on maturity.
Listing, Demat & TDS – SREI would get these NCDs listed on both the exchanges, Bombay Stock Exchange (BSE) as well as National Stock Exchange (NSE). Investors have the option to apply these NCDs in physical form as well as demat form, except Series VI NCDs which will be issued compulsorily in the demat form.
As the interest earned on these NCDs would be taxable in the hands of the investors, they will have to pay tax on it as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000 in a financial year. NCDs taken in the demat form will not attract any TDS on the interest income.
Minimum Investment – The investors are required to apply for at least 10 NCDs in this issue which makes it a minimum investment of Rs. 10,000.
To me, this NCD issue is simply unattractive. It is not for those investors who are liable to pay taxes and/or who don’t want to risk their investments. Only those investors, who want regular income on a monthly basis, can bear risk somewhat and need not pay any taxes on their annual incomes, should subscribe to this issue.
Investors in the 30% or 20% tax bracket should straightaway ignore these NCDs and subscribe to the tax free bond issues.
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 SREI Infra NCDs, you can contact me at +919811797407