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
After the successful issue of Edelweiss Housing Finance Limited (EHFL), DHFL, or Dewan Housing Finance Limited, is coming out with its issue of Non-Convertible Debentures (NCDs) from the coming Wednesday i.e. August 3, 2016. These NCDs will carry coupon rates in the range of 8.83% to 9.30%, resulting in an effective yield of 9.20% to 9.30% for the individual investors.
Though the issue is scheduled to close on August 16, it is likely that it will get oversubscribed prior to its closing date. Given a bumper response to the Edelweiss Housing Finance NCDs issue, there should be a reasonably high demand for this issue as well.
Before we take a decision whether to invest in this issue or not, let’s first check the salient features of this issue.
Size & Objective of the Issue – The company plans to raise Rs. 4,000 crore from this issue, including the green shoe option of 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.
Coupon Rate & Tenor of the Issue – The issue will carry coupon rate of 9.20% p.a. for a period of 3 years (36 months), 9.25% p.a. for 5 years (60 months) and 9.30% p.a. for 10 years (120 months). Investors will have the option to receive interest on a monthly, annual or cumulative basis.
CPI Linked Floating Interest Rate NCDs – This is the most unique feature of this issue. The company has decided to offer CPI-linked floating interest rate to its Series X NCD investors and there will be a ‘Floor’ as well as a ‘Cap’ on the interest rate. Floor has been set at 8.90% p.a. and Cap at 9.50% p.a. The specified spread will be 4.18% p.a. for Category III & Category IV investors. For the first year, reference CPI has got calculated at 5.02% p.a., so it is 5.02% + 4.18% = 9.20%.
Suppose, we have 4.72% as the reference CPI for the next year. In that case, the rate of interest will be 8.90% for the second year.
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 – Qualified Institutional Bidders (QIBs) – 20% of the issue i.e. Rs. 800 crore
Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 800 crore
Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 1,200 crore
Category IV – Resident Indian Individuals including HUFs – 30% of the issue is reserved i.e. Rs. 1,200 crore
Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first served (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.
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 – CARE and Brickwork Ratings have rated this issue as ‘AAA’ with a ‘Stable’ outlook. Moreover, these NCDs will be ‘Secured’ in nature.
Listing, Premature Withdrawal & Put/Call Option – These NCDs will get listed on both the national 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. Though there is no option of a premature redemption, the investors can always sell these bonds on the exchanges.
Demat, Physical Application – Demat account is not mandatory to invest in these NCDs as the investors have the option to apply for these NCDs in physical or certificate form as well.
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.
Should you invest in DHFL NCDs?
In 2013-14, when G-Sec yield was ruling above 9%, investors were scared to invest in debt securities due to negative returns on their investments. With falling yields on Government Securities (G-Secs) and corporate bonds, interest rates on various investment products like fixed deposits (FDs), post office small saving schemes, non-convertible debentures (NCDs) and tax-free bonds have all fallen by 1% to 2.5% in the last two years or so.
Now, with a fall in bond yields and 15-20% appreciation in bond prices, investors are chasing theses debt investments. But, I think that period of making easy money is over now and it would be very difficult for us to have similar returns going forward. Investors should not expect returns in double digits now on.
That being said, these rates of 9.20% to 9.30% do not attract me much, despite the issue being rated as ‘AAA’ by the rating agencies. I would rather prefer SBI NCDs yielding ~8.50% or Tax-Free Bonds yielding ~7% or equity mutual funds earning an average annual return of 15% or so. Conservative investors should avoid these NCDs and explore other options like post office saving schemes, tax-free bonds, debt mutual funds or other listed NCDs.
Investors, who are not required to pay any tax on their annual taxable income or who fall in the 10% tax bracket or who have high degree of confidence in the execution capabilities of DHFL’s management, can consider investing in these NCDs for a period of 3 years or at max 5 years. I personally avoid longer term investment periods with private companies, so would advise my clients too to avoid the 10-year option in this case.
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 DHFL NCDs, you can reach us at +919811797407
Will the listing gain atleast 2 % ?
I don’t think there should be a listing gain of 2%. It is not justified to have this kind of listing gain. But, I won’t be surprised either if it is there.
DHFL NCDs to get listed on the BSE & the NSE tomorrow i.e. August 19th – http://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20160818-11
Here are the BSE and the NSE codes for the same:
8.83% 3-year NCDs – Monthly Interest – BSE Code – 935794, NSE Code – N2
8.88% 5-year NCDs – Monthly Interest – BSE Code – 935798, NSE Code – N4
8.93% 10-year NCDs – Monthly Interest – BSE Code – 935802, NSE Code – N6
9.20% 3-year NCDs – Annual Interest – BSE Code – 935806, NSE Code – N8
9.25% 5-year NCDs – Annual Interest – BSE Code – 935810, NSE Code – NA
9.30% 10-year NCDs – Annual Interest – BSE Code – 935814, NSE Code – NC
9.20% 3-year NCDs – Cumulative Interest – BSE Code – 935818, NSE Code – NE
9.25% 5-year NCDs – Cumulative Interest – BSE Code – 935820, NSE Code – NF
9.30% 10-year NCDs – Cumulative Interest – BSE Code – 935824, NSE Code – NH
9.20% 3-year NCDs – Floating Rate Annual Interest – BSE Code – 935828, NSE Code – NJ
Deemed date of allotment has been fixed as August 16, 2016. Annual interest will be paid on August 16th every year. Monthly interest will be paid on 16th of every month starting September 16th, 2016.
according to business line dhfl to raise another tranchee of ncd of about 10 thousand crore we can accept good allotment in that isue isn’t it shiv
Hi Nitesh,
Subscription/Allotment will depend on the rate of interest offered by the company as the issue details get announced.
Hi Guys;
Have you received refunds of the partial amount from DHFL. By when do they show up in the investment portal; i.e the share registrar process for allotment is completed?
Hi Sunil,
Allotment/Refund process has completed. NCDs should soon get reflected in your demat account as they get listed tomorrow.
when is the listing dear shiv??
allotted 137 against 200 application…………
18003454001 toll free number of Karvy give your pan number or application number they will confirm you whether you have alloted or not abhinav
Ok.thanks. have the same been credited to your demat ac??
i have applied for 840 lots
45 out of 65 alloted to me
dear shiv
Where did you see the allotments ? received any SMS ?
Have u got credit in ur de mat ac. Me still not got any??
when will be the allotment ? will the listing be atleast 2 % ?
I heard of SREI Infrastructure Bonds coming up around 20th August ?
Ne update on the same?
please use common sense ..
on 20th august saturday how srei ncd start ???
Please take some English reading classes tuition and then reply
I have said that i just heard it and used the word around 20th august.
Google the around word and then come back.
Increase your common sense first then give advice.
Hahaha chill guys..take it light..
any idea when will the NCD wld be credited in our demat ac
Hi Abhinav,
DHFL NCDs should get credited by tomorrow evening.
I didnt get allotment still. no refund also. Applied 1st day. Should I wait further or contact Karvy?
according to today’s et paper nhai will issue tax free bonds in 2016 so is this true and can retailers can subscribe this issue or not dear shiv
I don’t think NHAI will issue tax-free bonds and if at all they will be allowed to do so, it will be done on a private placement basis.
can we have complete article on security traded on clean price & yield w.e.f 8/8/16 on bse. circular no 20160725-14
if i sell tax free bond today and accrued interest is credited in my bank a/c . then this interest is tax free or not for taxation point
Interest received post allotment is always tax-free with tax-free bonds.
Hi Vishal,
I’ll try to cover it in a few days.
Does any no the portion of allotment ?
I have applied for 200 NCD’s how much allotment will i ge t?
130 approx
Thank you for the response
Hi JD,
You should get around 133-134 NCDs allotted.
Thank you Shiv.
You are welcome JD!
Due to the small savings rate cut, we, Senior Citizens are constrained to go in for such investment options to get an interest rate of about 9%.
Hi Mr. Parthasarathy,
Senior citizens are there in each & every country. India is the only big economy where you get such high rates. One should take these opportunities with both hands. Rates should fall more here if India needs to grow.
dear shiv please clear our doubts regarding second day supscription figures
those who applied for 100 debentures will approximately get 65.
Thanks Dr. Bhatia for your inputs!
if your retail supscription
figures is correct shiv then we could get allotment 60 percent if applied on second day please correct me if I am wrong
Hi Nitesh,
2nd day applicants will not get any allotment.
Day 2 (August 4) Subscription Figures:
Category I – Rs. 4,947.80 crore as against Rs. 800 crore reserved – 6.18 times
Category II – Rs. 2,666.03 crore as against Rs. 800 crore reserved – 3.33 times
Category III – Rs. 9,222.36 crore as against Rs. 1,200 crore reserved – 7.69 times
Category IV – Rs. 1,814.85 crore as against Rs. 1,200 crore reserved – 1.51 times
Total Subscription – Rs. 18,651.04 crore as against total issue size of Rs. 4,000 crore – 4.66 times
The issue stands closed today.
how can subscription category IV of 1st day of 1.55 times becomes 1.51 times on 2nd day??
it should increase or steady but not going to decrease sir??
Reply awaited
Hi Vishal,
This could be because of technical rejections, modifications/withdrawal of applications.