Muthoot Finance is launching its issue of non-convertible debentures (NCDs) in the new financial year starting April 9, 2018. The company plans to raise Rs. 500 crore from this issue, with an option to retain oversubscription to the tune of Rs. 3,000 crore. These NCDs will carry coupon rates between 8% for 400 days and 9% for 60 months. Maturity period will range between 400 days to 60 months, having monthly, annually and cumulative interest payment options. The issue will remain open for a month and is scheduled to close on May 8, 2018.
Here are the salient features of the issue you should consider before taking a decision to invest or not:
Size of the issue – Base size of the issue is Rs. 500 crore and Muthoot will have the option to retain oversubscription to the tune of Rs. 3,000 crore, including the green-shoe option of Rs. 2,500 crore.
Minimum Investment – Investors are required to apply for a minimum of ten bonds of Rs. 1,000 face value i.e. an investment of at least Rs. 10,000.
Coupon Rates – Muthoot has decided to offer interest rates similar to what it offered last year in April 2017. These NCDs will carry coupon rates in the range of 8% for 400 days to 9% for 60 months. All these NCDs will be ‘Secured’ in nature.
Double your Money Option Missing – Muthoot used to offer an option to double your money in 8 years (or 96 months). This option was there last year as well, but it was ‘Unsecured’ in nature. However, there is no such option this year.
An effective yield of 9.06% p.a. results in doubling your money in 8 years. So, having an option of 9% for 5 years and then reinvesting the proceeds for another 3 years at approximately 9.25% would help you double your investment amount. But, you will have to consider tax effects on the interest payments.
You can check the rates offered for different maturities and different payment options from the table below:
Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and 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. 600 crore
Category II – Non-Institutional Investors & Corporates – 20% of the issue is reserved i.e. Rs. 600 crore
Category III – High Net Worth Individuals (HNIs) & HUFs investing more than Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 900 crore
Category IV – Retail Individual Investors, including HUFs investing up to Rs. 10 lakhs – 30% of the issue is reserved i.e. Rs. 900 crore
Allotment on First-Come First-Served Basis –Allotment will be made on a first-come first-served basis, as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.
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. As mentioned above as well, all these NCDs are ‘Secured’ in nature.
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.
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.
Listing on BSE – Muthoot has decided to get its NCDs listed 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.
Should you invest in Muthoot Finance NCDs?
Despite of the fact that the bond yields have jumped by close to 1.5% in the last one and a half years, no company is willing to raise interest rates on their NCDs. In April 2017, when bond yields were far lower than their current levels, Muthoot offered interest rates in a similar range. SREI Infrastructure Finance and Edelweiss Retail Finance, both raised money in the previous quarter by issuing their NCDs and offered interest rates close to what Muthoot is offering in this issue.
I think Muthoot, SREI Infra Finance and Edelweiss Retail Finance, all should have offered higher interest rates. But, as long as banks are not willing to raise interest rates on their fixed deposits, these finance companies have the liberty to take this opportunity of raising money at such lower rates.
To me, these interest rates are not attractive. I would rather invest my money in debt funds or stocks of fundamentally sound companies for long term or bank FDs of shorter duration.
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 +91-9811797407