Upcoming Shriram Transport Finance Corporation
NCD Issue
Shriram Transport Finance Corporation will be launching the
first public issue of Non-Convertible Debentures (NCDs) this financial year
from July 26th. The issue size is Rs. 600 crore including a green-shoe option
of Rs. 300 crore. The company plans to use the proceeds for various financing
activities including lending and investments, to repay existing loans, for
capital expenditures and other working capital requirements. The issue closes
on August 10, 2012.
The bonds offer an annual coupon rate of 10.25% and 10.50%
for a period of 36 months and 60 months respectively. What the company has done
to make these NCDs attractive for the individual investors is that they will be
offered an additional 0.90% p.a. making it an annual coupon rate of 11.15% and
11.40% respectively. This means even if an individual investor buys it from the
secondary markets they are going to get 11.15% or 11.40%.
Many of you must have remembered that the company came with
a similar kind of issue last year also. Bonds issued last year are currently
yielding 11.07% under the 60 months reserved individual option and 12.23% under
the 36 months reserved individual option. So, going by these yields, 11.40% and
11.15% is actually attractive for the individual investors.
The investors will have the option to get the interest
either paid annually or at the end of the tenure along with the principal.
Under the cumulative interest option, retail investors will get Rs. 1,716.15
after 5 years and Rs. 1,373.19 after 3 years for every Rs. 1,000 invested. For
all other investors, these amounts stand at Rs. 1,647.90 and Rs. 1,340.10
respectively.
The interest earned would be taxable but the company will
not deduct any TDS on it as is the case with all of the listed NCDs. The issue
keeps a minimum investment requirement of Rs. 10,000 (or 10 bonds of face value
Rs. 1,000) which seems reasonable from the small retail investors’ point of
view.
These bonds will offer reasonable liquidity to the
investors as they are going to list on both the stock exchanges – NSE and BSE.
Unlike last year, the retail investors will have the option to apply these
bonds in physical form also. All the remaining investors will have to subscribe
these bonds compulsorily in demat form only.
40% of the issue is reserved for the Reserved Individual
Category i.e. for the individual investors investing up to Rs. 5 lakhs and
another 40% of the issue is reserved for the Non-Reserved Individual Category
i.e. for the individual investors investing above Rs. 5 lakhs. 10% of the issue
is reserved for the institutional investors and the remaining 10% is for the
non-institutional investors. NRIs and foreign nationals among others are not
eligible to invest in this issue.
A slew of NCD issues had hit the markets last year when
companies like Shriram Transport, Shriram City Union Finance, Muthoot Finance,
Manappuram Finance, Religare Finvest, India Infoline Investment Services etc.
came with approximately ten such issues. I must tell you, except Shriram
Transport NCDs, all other NCDs listed at a discount and that too at quite a
deep discount of 5-8% in some cases. Many of them have still not been able to
recover from those losses. They must be yielding higher than 13% even now.
But Shriram group is a quite stable group and the issue has
been rated ‘AA/Stable’ by CRISIL and ‘AA+’ by CARE suggesting that these bonds
are reasonably safe to invest. Unlike last year, there are no put/call options
available either to the investors or to the company.
Regards,
Arvind Trivedi
Certified Financial Plannerarvind.trivedi79@gmail.com