Edelweiss Housing Finance 10% NCDs – July 2016 Issue

by Shiv Kukreja on July 8, 2016

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]

Edelweiss Housing Finance Limited (EHFL), a subsidiary of Rashesh Shah’s Edelweiss Group, is launching its public issue of secured and redeemable non-convertible debentures (NCDs) from tomorrow, July 8th. The issue will carry a maximum of 10% coupon rate with monthly, annual and cumulative interest payment options and tenors of 36 months, 60 months and 120 months.

The issue is scheduled to close on July 27th. However, I think it should get oversubscribed in a day or two due to high demand. Let us check other salient features of this issue.

Size & Objective of the Issue – The company plans to raise Rs. 500 crore from this issue, including the green shoe option of Rs. 250 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 – The issue will carry coupon rate of 9.50% p.a. for a period of 36 months (3 years), 9.75% p.a. for 60 months (5 years) and 10% p.a. for 120 months (10 years).

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

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 i.e. Rs. 100 crore

Category II – Non-Institutional Investors – 20% of the issue i.e. Rs. 100 crore

Category III – Individual & HUF Investors – 60% of the issue i.e. Rs. 300 crore

Allotment will be made on a first-come-first-served basis.

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 ICRA have rated this issue as ‘AA’ with a ‘Stable’ outlook, while Brickwork Ratings has assigned it AA+ (Stable) rating. As mentioned above, 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 Not Mandatory – Demat account is not mandatory to invest in these NCDs as the investors have the option to apply for them in physical 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.

About EHFL & Its Financials

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

Edelweiss Housing Finance Limited (EHFL) is a non deposit taking housing finance company offering financing of various sort to individuals and corporates. Edelweiss Financial Service Limited and Edelweiss Commodity Services Limited are the promoters of EHFL and hold 22.39% and 77.61% stake respectively. EHFL offers home loans – 37% of loan book, loan against property – 26% of loan book, construction finance 20% of loan book and rural finance – 16% of loan book.

Should you invest in these NCDs?

Interest rates of 9.50% to 10% from a private company don’t attract me much. It will take 10 years for these NCDs to provide me approximately 160% return. I would rather invest in good quality stocks than take risk with these kind of NCDs. I think investing in diversified equity mutual funds will generate much higher returns in the long term than these NCDs. Moreover, the interest earned is taxable, which reduces our after-tax returns.

However, these NCDs are still suitable to those investors who are not liable to pay any tax or fall in the 10% tax bracket. Also, I would suggest investors to go for either 36 months option or 60 months option. Investing for a period of 120 months (10 years) with a private company becomes risky sometimes. Risk-averse investors, falling in 20% or 30% tax bracket, should invest in debt funds or tax-free bonds for medium to long term.

Application Form of EHFL 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 EHFL NCDs, you can reach us at +919811797407

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