Demonetisation has resulted in a problem of plenty for the Indian banking system. Most banks are flushed with excess liquidity and have drastically reduced their deposits as well as lending rates. With such steep rate cuts, it is getting difficult for the conservative investors to park their money in safer investment options offering higher rate of interest.
In such a falling interest rate scenario, Muthoot Finance is launching its issue of non-convertible debentures (NCDs) of Rs. 1,400 crore from today. Muthoot is offering coupon rates of 8.25% to 9.25% for different maturities ranging between 400 days to 96 months having both Secured, as well as Unsecured NCDs. The issue is scheduled to remain open for a month to close on February 17.
Here are the salient features of this issue you should consider before taking a decision to invest or not:
Size of the issue – Muthoot Finance plans to raise Rs. 1,400 crore from this issue, Rs. 1,300 crore by issuing its Secured NCDs and Rs. 100 crore by issuing its Unsecured NCDs. Base size of the issue is Rs. 200 crore and the company will have the option to retain oversubscription to the tune of Rs. 1,400 crore, including the green shoe option of Rs. 1,200 crore.
Coupon Rates – As interest rates have been falling with most of the fixed income investments, like fixed deposits, company deposits, NCDs etc., Muthoot has also decided to reduce its interest rates across maturities. These NCDs will carry coupon rates in the range of 8.25% for 400 days to 9.25% for 36-60 months. Series I-X will all be Secured NCDs and Series XI will have Unsecured NCDs.
Double your Money Option – Series XI NCDs will offer cumulative interest option and will earn you a 100% return on your investment in a period of 8 years or 96 months. It would translate to an effective yield of 9.06% per annum. But, NCDs issued under this option are ‘Unsecured’ in nature, thus carry a slightly higher risk than Secured NCDs.
You can check the rates offered for different maturities and different payment options from the table below:
Coupon Rates for Institutional Investors – Institutional investors will get 0.25% lower rate of interest on their investments with Secured NCDs and 0.15% lower for Unsecured NCDs.
Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and as always, each category will have certain percentage fixed for the allotment:
Category I – Qualified Institutional Buyers (QIBs) – 20% of the issue is reserved i.e. Rs. 280 crore
Category II – Non-Institutional Investors & Corporates – 10% of the issue is reserved i.e. Rs. 140 crore
Category III – Individual Investors, including HUFs – 70% of the issue is reserved i.e. Rs. 980 crore
NCDs will be allotted on a first-come first-served basis in all these categories.
NRI/QFI Investments – Non-Resident Indians (NRIs), foreign nationals and Qualified Foreign Investors (QFIs) among others are not allowed to invest in this issue.
Ratings & Nature of NCDs – CRISIL and ICRA, the two rating agencies involved in this issue, have assigned ‘AA/Stable’ rating to the issue, indicating the issue to be safe as far as timely payments of interest and principal investments are concerned. All these NCDs are ‘Secured’ in nature, except NCDs issued under option XI which offer to double your money in 96 months.
Demat Account Mandatory – Muthoot has decided to issue these NCDs compulsorily in demat form. So, if you don’t have a demat account, you won’t be able to apply for these NCDs.
Listing on BSE – Muthoot has also decided to list its NCDs only on the Bombay Stock Exchange (BSE). Allotment as well as listing of these NCDs will happen within 12 working days from the closing date of the issue.
Taxability & TDS – Interest earned on these NCDs will be taxable as per the tax slab of the investor. However, as these NCDs will be allotted compulsorily in your demat accounts, no TDS will be deducted from your interest income.
Minimum Investment – Minimum investment in this issue has been fixed at Rs. 10,000 i.e. 10 NCDs of face value Rs. 1,000 each.
Should you invest in Muthoot Finance NCDs?
Muthoot Finance is a prominent name in the business of gold financing. But, a strong US economy, a stronger dollar against most global currencies, falling gold prices, falling interest rates here in India, competition heating up among lenders here and demonetisation, all these factors make me believe that business environment will be tougher for the gold financing companies going ahead.
Moreover, gold finance business is relatively riskier as compared to the housing finance business. NCD issues by DHFL, Indiabulls Housing Finance and Reliance Home Finance carried interest rates in a similar range as Muthoot is offering. So, if I have to invest my money with Muthoot, I would seek a higher return as compared to the rates it is offering in this issue of NCDs. I think conservative investors should give this issue a miss and wait for some better issues to invest their money.
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 Muthoot NCDs, you can contact us at +919811797407