Shriram City Union Finance NCDs Issue – November 2013

by Shiv Kukreja on November 24, 2013

in Uncategorized

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 [email protected]

As Muthoot Finance NCD issue gets preclosed on Monday, Shriram City Union Finance (SCUF) is also launching its issue of non-convertible debentures (NCDs) from the same day, November 25th. The company plans to raise Rs. 200 crore from the issue, including Rs. 100 crore of green shoe option.

SCUF has decided to offer an annual coupon rate of 11% for a period of 36 months, 11.25% for 48 months and 11.50% for 60 months to the retail investors and high networth individuals (HNIs).

Institutional investors, non-institutional investors, corporates etc. will be paid a lower rate of interest, which has been fixed at 10.75% per annum across all seven options, for all the tenures – 36 months, 48 months or 60 months.

It will be a month-long issue which is scheduled to close on December 24th i.e. Tuesday. As the issue size is small, the company has the option to preclose it as and when it gets oversubscribed. If it gets a poor response, the company may extend it also.

Retail investors category investing up to Rs. 5 lakh would get 40% pie of the issue. Individual investors investing more than Rs. 5 lakh in a single name would be categorised as HNIs and 40% of the issue size has been reserved for this category of investors also.

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have a certain percentage fixed in the allotment:

Category I – Institutional Investors – 10% of the issue is reserved

Category II – Non-Institutional Investors & Corporates – 10% of the issue is reserved

Category III – High Networth Individuals including HUFs – 40% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs – 40% 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.

Ratings & Nature of NCDs – The issue has been rated as ‘AA’ by CARE and all these NCDs are ‘Secured’ in nature. It indicates reasonable safety for your investment amount.

Listing, Demat & TDS – SCUF has proposed to list its NCDs on the Bombay Stock Exchange (BSE) as well as on the National Stock Exchange (NSE). Investors have the option to apply these NCDs in physical form as well as demat form. However, trading of these NCDs will happen only in the demat form.

Interest earned on these NCDs is taxable 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 – Minimum investment in this issue has been fixed as Rs. 10,000 i.e. 10 bonds of face value Rs. 1,000.

Performance of Last Year’s SCUF NCDs

As you can check from the table above, SCUF NCDs issued last year, with maturity periods of 36 months and 60 months, are trading at yields of 11.58% to 13.73%, much above the coupon rates offered in the current issue.

Also, with a private company being the issuer, it is always advisable to go for the least possible tenure offering attractive coupon/yield. As compared to the current issue, last year’s NCDs carry lower risk as the maturity period has become shortened.

Interest rates have also risen since its last issue. So, I would say if anybody wants to make an investment in SCUF NCDs, it is better to go for already listed NCDs rather than subscribing for them in the current issue.

Looking at the subscription figures of recent NCD issues of IIFL, Shriram Transport Finance, Muthoot Finance etc., it seems to me that the investors are not performing any due diligence before subscribing to these NCDs, rather these NCDs are getting sold to them by their brokers. Personally, I would avoid this issue for my own investments.

Application Form of Shriram City Union 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 SCUF NCDs, you can contact me at +919811797407

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