Muthoot Finance NCD Details

Muthoot Finance Limited, a flagship company of the Muthoot group, is primarily into the gold financing business which constitutes 99% of its total advances. It is also the largest gold loan company in India.  Muthoot started its lending business in 2001 after getting RBI’s registration to function as an NBFC and currently it has a network of 3,780 branches all over India. The company till date has no major plans to diversify its business from gold loans to any other streams of financing. This issue will be the fourth issue from this company in just over one year’s time. Muthoot collected Rs. 1,413 crore through its previous three issues – Rs. 693 crore from Series I, Rs. 460 crore from Series II and Rs. 260 crore from Series III. The size of this NCD issue is Rs. 500 crore including a green-shoe option of Rs. 250 crore.

Muthoot reported revenues of Rs. 4,549 crore in FY12 as against Rs.2,316 crore in FY11, a jump of almost 96%. Net profit of the company increased by a massive 81% from 494 crore in FY11 to 892 crore in FY12.  Gross NPAs and Net NPAs of the company stood at 0.56% and 0.57% respectively as on March 31, 2012 as against 0.29% and 0.33% respectively as on March 31, 2011.

Again, NRIs and foreign nationals among others are not eligible to invest in this issue. The allotment will be made on a “first-come-first-served” basis. These bonds will also list on both the stock exchanges – NSE and BSE. Investors will have the option to apply these bonds in physical form also except the “Option V” bonds which are available only in the  demat  mode. The detail as given below

Issue of Muthoot Finance Secured Non-Convertible Debentures (NCDs)

Options	Particulars
Issuer	Muthoot Finance Limited
Issue period	17 September 2012 To 5 October 2012
Issue Size	Rs 500 Crores (Public issue of Rs 250 Crores with an option to retain over-subscription of Rs 250 Crores)
Basis of allocation	First come first serve basis
Listing	Proposed to be listed on BSE and NSE
Rating	ICRA AA-/Stable and CRISIL AA-/Stable
Face Value and Issue Price	Rs 1,000 per NCD (Trading Lot - 1 NCD and in multiples of 1 NCD)
Minimum Application	Rs 10,000 (10 NCDs) and in multiples of 1 NCD thereafter
Interest Payment Date	Annual Frequency - on 1st day after 31 March and Monthly Frequency - 1st day of next month.
Trading and Issuance	Both physical and dematerialised form (NCDs under Option V will be compulsorily allotted in dematerialised form.)
Interest Payable	Interest on application 11.50% p.a and Interest on refund 6.00% p.a. (Refer Terms and Conditions)
Who can apply: Institutional, Non Institutional, Indian Nationals Resident in India and HUF
Investor Category	I (Institutional)	II (Non Institutional and HNl)	III (Retail)
Issue allocation %	15%	35%	50%

Specific terms for each series of Bonds:

Series	I	II	III	IV	V
Frequency of Interest Payment	Annual	Annual	Monthly	Annual	Cumulative
Tenor (In months)	24	36	60	60	72
Coupon Rate (%) p.a	11.50%	11.75%	11.75%	12.00%	NA
Effective Yield (%) p.a	11.50%	11.75%	11.75%	12.00%	12.25%
Redemption Amount per NCD	Face value + interest				Rs. 2,000

View on this issue:

As the Reserve Bank of India (RBI) has become stricter with the gold financing norms. Competition from the banks and other gold financing companies has also increased. It is the most unattractive issue of this financial year.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

RBI Cuts CRR and leaves Repo Rate Untouched

Today, The Reserve Bank of India (RBI) left interest rates unchanged but cut the cash reserve ratio for banks by 25 bps, saying the primary focus of monetary policy remains fighting inflation, days after the government unveiled a string of reforms to boost growth and improve its fiscal position.

The RBI left the policy repo rate at 8 percent. The RBI cut the cash reserve ratio (CRR), the share of deposits banks must keep with the central bank, by 25 basis points to 4.5 percent in a move it said will inject about 170 billion rupees of liquidity into the banking system.

The rupee and bond prices weakened immediately after the RBI decision, with the yield on the 10-year bond rising 5 basis points from before the RBI statement to 8.17 percent. The one-year swap rate rose 8 bps to 7.68 percent from before the release. The sensex and nifty have also seen some decline from their respective high after immediate RBI policy announcement.

"The government's recent actions have paved the way for a more favourable growth-inflation dynamic by initiating a shift in expenditure away from consumption (subsidies) and towards investment (including through FDI). However, in the current situation, persistent inflationary pressures alongside risks emerging from twin deficits-current account deficit and fiscal deficit -- constrain a stronger response of monetary policy to growth risks" the RBI wrote in its policy statement.

On Thursday, the government announced a sharp increase in the price of heavily subsidised diesel. It had unveiled a slate of measures to rein in a ballooning fiscal deficit and avoid a credit rating downgrade to junk. However, for common man it has become very difficult to run their daily life expenses and govt has its own target to control fiscal deficit devil.

The RBI has held borrowing costs steady since a deeper-than-expected 50 basis point cut in April, and has repeatedly called on the government to do its part by improving its fiscal position, which had fuelled some expectation that it might cut rates as a gesture in reply to the government's moves.

Govt’s diesel price hike decision had initially prompted market participants to speculate that the RBI may lower interest rates on Monday, but a spike in August inflation data on Friday from July's near three-year low put a damper on such expectations. India's wholesale price index rose a higher-than-expected 7.55 percent in August from a year earlier, mainly driven by higher food prices.
The govt seems serious about reform this time. The diesel price rise will aggravate short term inflation. But, along with the measures unveiled Friday to liberalise ownership of supermarkets and other industries, it shows the government is serious about fiscal consolidation and encouraging investment, and may make RBI more inclined to ease monetary policy sooner than later.

The government kicked into gear late last week after a wave of corruption scandals had weakened it and led to months of little substantive policy action, souring investor sentiment and putting at risk India's investment-grade credit rating.
So we can say, RBI has made a balancing act and kept an eye on inflation also. Now it is important how well and soon govt’s reform measures for growth would be implemented. There is also a strong fear that the announced measures may be stuck in opposition’s strong movement against these reform policies.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Shriram City Union Finance Limited
SECURED Non Convertible Debenture Issue
Rating: AA- from CRISIL.

For 36Months
Particulars	Coupon (%)
Individuals	11.50%
Non Individuals	10.60%

For 60Months
Particulars	Coupon (%)
Individuals	11.75%
Non Individuals	10.75%

About Shriram City Union Finance Limited

Shriram City Union Finance Limited is a deposit-accepting NBFC registered with RBI. Established in 1986 and with a track record of more than twenty five years in the financial services sector, it is also one of the largest small enterprise finance company in India.

Key Strength

1. Company has track record of more than 25years in financial services and has pan india presence, with 575 branches.
2. Growth in Assets under management (AUM) from 226,889.78lacs in FY08 to Rs1,242,103.98lacs in FY12 ; growing at a CAGR of 41.30%.
3. Diversified product portfolio:
1. 11.60% of AUM comprised of product finance loans.
2. 18.33% comprised of Vehicle loans.
3. 5.23% comprised of personal loans.
4. 15.46% comprised loans against gold.
5. 19.99% loans to the small enterprises finance segment collateralized by gold.
6. 29.39% comprised loans to small enterprise finance segment.
4. Company has an experienced senior management team and a board with extensive experience in the financial services sector.
5. Largest small enterprise finance company in india with a dominant market share of 95% in the small loan segment (loans of Rs1lacs -Rs10lacs).
6. Company also leads the total india micro, small and medium enterprises market with 53% share.
7. Company is a part of the Shriram group; which has a strong presence in financial services in india; including commercial vehicle financing, consumer finance, life and general insurance, stock broking, chit funds and distribution of life and general insurance product and mutual fund products.

The Issue
Public Issue by our Company of NCDs aggregating upto Rs. 250 Crores with an option to retain over-subscription upto Rs. 250 Crores for issuance of additional NCDs aggregating to a total of upto Rs. 500 Crores. The NCDs will be secured in nature and Security for the purpose of this issue will be created in accordance with the terms of the Debenture Trust Deed.

Objects of the Issue
The funds raised through this Issue will be used to finance company's business operations, lending, investments, repay existing loans, business operations including capital expenditure, working capital requirements, meeting expenses of the Issue.

ISSUE DETAILS:

Issue Opens	12th Sept, 2012
Issue Closes	26th Sept, 2012
Tenure	36 Months & 60 Months
Rating	AA- from CRISIL & CARE
Face Value	Rs. 1,000 each
Listing	NSE & BSE
Issuance & Trading	Compulsorily in Dematerialized form
Min. Application	Rs. 10,000 (10 NCDs of Rs. 1,000 each)
Trustees for NCDs	GDA Trusteeship Ltd.

KEY FINANCIAL F IGURES (Rs. in Lacs)
Particulars	FY2010	FY2011	FY2012
AUM	521,550	799,805	1,343,104
Net Worth	100,000	121,207	172,390
Total Income	110,790	132,345	205,641
Net PAT	19,426	24,059	34,253

KEY FINANCIAL RATIOS (%)
Particulars	FY2010	FY2011	FY2012
Gross NPA	2.27%	1.86%	1.55%
Net NPA	0.71%	0.43%	0.38%
CAR	26.28%	20.53%	17.40%

Comparison to Bank & Company FD
		Post Tax Return under Tax Slab
Option	Interest Rate	30.00%	20.00%	10.00%
Bank FD	9.25%	6.48%	7.40%	8.33%
Company FD	10.50%	7.35%	8.40%	9.45%
SCUF NCD*	11.75%	8.23%	9.40%	10.58%
Source: Bank FD rates of ICICI Bank for 5 years and Company FD rates of Mahindra Finance. * SCUFL rates of 60 month Cumulative option, series IV (for Individual).

Why should one invest..?

The issue available in four series offers an added incentive in coupon for individual investors taking it to the coupon rate of 11.50% and 11.75% for 36 and 60 Months, respectively. Also, the issue being a SECURED one and a decent Credit Rating are an added advantage. However, NCDs are not guaranteed investments like those of Bank FDs and thus one should balance the portfolio's exposure towards such issues after properly analyzing the risk factors.

The additional incentive above 10.60% for 36 Months and 10.75% 60 Months of 0.90% and 1.00% respectively, for Individual Investors is an attractive option. Also, with the option of Cumulative one can lock-in the high yield for a longer duration (5 Years) with the reinvestment at the same rate. With the issue being secured the effective yield of 11.50% for 36 Months and 11.75% 60 Months is a good opportunity for individual investors.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Are you confused between NCDs and FDs ?

Now a days many companies such as India Infoline Finance Ltd, Shriram City Union Finance has came out with Non-Convertible Debenture (NCD) issues. There are some confusion among the investors what are these NCDs and how different are they from Fixed Deposits (FDs)?

Like Fixed Deposits (FDs), infrastructure bonds and tax-free bonds, companies use NCDs as another route to raise capital. For investors, an NCD is another investment option available on the debt side.

Similarities between NCDs & FDs

NCDs and FDs are similar in a few ways. For example, like FDs, the NCDs are issued by companies for varying time periods such as 400 days, three years, five years.

You can choose to receive the interest at maturity (cumulative option) or choose to receive it at certain intervals (non-cumulative option) if you require regular cash flows, just like you do for FDs. While bank and company FDs are not credit rated, both NBFC FDs and NCDs are rated by agencies such as CRISIL, ICRA or CARE.

Like in company FDs, the credit rating on NCDs serve as a important factor  to differentiate the less risky offers from the more risky ones. For example, NCDs from both Manappuram Finance and Shriram City Union Finance were open simultaneously in August 2011, but while the former was given an AA- rating by CARE, the latter was rated AA, a notch higher, by the same agency. For both FDs and NCDs, the interest is not tax free. It is taxed under the head ‘Income from Other Sources’ at the slab rates.

Differences between NCDs and FDs

There are some distinction between these instruments. First, NCDs can either be secured or unsecured. A ‘secured’ NCD would mean that, in case the company is liquidated, the NCD holders would be given a priority in repayment of money due to them as they are secured by a charge on any of the assets of the company.

In this context, unsecured NCDs will be riskier, but companies compensate this by providing comparatively higher interest rates on these. The same with NCDs, having a lower credit rating.

In FDs, there is no concept of secured or unsecured FDs. Bank FDs are generally covered by deposit insurance upto Rs 1 lakh.  As this insurance is not available for other FDs, they are comparatively riskier.  Secondly, investments in a five-year FD from scheduled banks are entitled to deduction under Sec 80C. NCDs of a similar tenure don’t enjoy this benefit. Besides, if FD interest is higher than Rs 10,000, tax is deducted at source (TDS) itself. There is no TDS for NCDs. Unlike FDs, they are mostly issued in demat form. Hence, investors may require a demat account.

The most important difference is that unlike FDs, NCDs can be listed and traded in the stock exchange, although the liquidity may not be too high. A downward movement in interest rates for example, could lead to appreciation in the value of the NCD. Selling the NCDs in the market will attract short/long-term capital gains tax.

If you have any query about investment and any financial product. please feel free to ask me.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

Impact of Deposit Rate cut by Country’s largest bank

The country’s largest lender, State Bank of India (SBI), has cut its deposit rates by one full percentage point. Many believe others bank may follow suit, and we may even see banks cutting their minimum lending rate, or the base rate, finally, as the cost of money for them will come down. Till now, SBI and a few others have selectively cut loan rates in certain segments such as mortgages, auto loans and education loans but none has cut the base rate, which will drive down the cost of loans for borrowers across segments.

It took six months for the Reserve Bank of India’s policy rate cut to be transmitted into the system. In April, the Indian central bank cut its policy rate by half a percentage point. The apparent reason for cutting the deposit rate is easing liquidity in the system. The average bank borrowing every day from the Reserve Bank’s repo window is testimony to that. In April, the average borrowing per day was Rs. 1.01 trillion. That came down to Rs. 99,000 crore in May and Rs. 92,000 crore in June. Since then, there has been a dramatic drop to Rs. 46,000 crore in July and Rs. 45,000 crore in August. In the first few days of September, it has been a mere Rs8,000 crore. Clearly, the banks are more comfortable with the liquidity conditions.

The government has borrowed Rs. 3.09 trillion or 54.2% of the annual gross amount so far. Its net borrowing has been Rs. 2.34 trillion, or 48.9%. On 22 September, there will be redemption of bonds worth Rs11,000 crore and another Rs5,000 crore will come up for redemption in November. But the money released through redemptions will be soaked up by new bonds. Besides, around Rs50,000 crore will leave the system when Indian corporations pay their advance income tax in mid-September. This means the comfort on the liquidity front will not last long and not too many banks may feel encouraged to cut deposits rates and eventually loan rates.

At the same time, the system may not see the kind of liquidity tightness that it had witnessed last year. The government will start spending in the second half of the year and that will neutralise the impact of advance tax outflow.

One reason behind SBI’s decision to cut the deposit rates could be the lack of credit offtake. All banks have been shedding their high-cost bulk deposits in the absence of credit offtake. Till 10 August, year-on-year, credit offtake has been 16.5% against 20.3% in the previous year. Deposit accretion too has been less than the previous year but in the absence of credit offtake banks are deploying money in government bonds.

If indeed the credit offtake picks up in the second half of the year, there may not be any scope to cut deposit rates further and the base rate cut may still remain a mirage. Until now, the central bank has infused Rs. 81,580 crore through its bond buying programme or so-called open market operations (OMOs). It will continue to conduct OMOs to keep the cash deficit in the system within 1% of bank deposits, around Rs. 63,000 crore, which has been its stated objective.

In sum, SBI’s deposit rate cut could be an isolated event and it’s too early to expect a base rate cut by banks even though we may not see a severe liquidity crunch.

Regards,

Arvind Trivedi

Certified Financial Planner

arvind.trivedi79@gmail.com

(Above article from livemint.com)

India Infoline Finance Limited NCD

India Infoline Finance Limited (formerly known as India Infoline Investment Services Ltd.) will be launching its second issue of non-convertible debentures (NCDs) from September 5, 2012. To keep things absolutely clear right from the beginning, I’ll use IIFFL as the short name for this company as I want to distinguish this company from its well known listed parent company, India Infoline Limited (IIFL), and advise the readers not to confuse this issue as the issue launched by the parent company IIFL.
About India Infoline Finance Limited
India Infoline Finance Limited is a credit and finance arm of the IIFL group and provides loans against property, housing loans, gold loans, loans against securities/margin financing and medical equipment financing to the corporates, high networth individuals (HNIs) and retail clients. One of its subsidiaries, India Infoline Distribution Company Limited, is also engaged in the business of distribution of financial products like mutual funds, insurance products, company fixed deposits, NCDs, National Pension System (NPS), IPOs etc.
The company was originally incorporated on July 7, 2004 as a private limited company which leaves this company with a very short operating history and unproven business track record.
Financials of the company
During the year ended March 31, 2012, the loan book of the company stood at Rs. 6,746 crore as against Rs. 3,288 crore, an increase of approximately 105%. This jump has been achieved mainly on account of mortgage loans and gold loans which constitute approximately 45% and 41% of the total loan book respectively. The mortgage loan book is contributed by loan against property (LAP) at 89% and home loans at 11%. These figures suggest that the company is primarily focusing on gold loans as the new business segment and LAP in the housing loan segment.
IIFFL reported revenues of Rs. 953 crore in FY12 as against Rs. 520 crore in FY11, a jump of almost 83%. It also reported 76% increase in its net interest income (NII) to Rs. 412 crore in FY12 from Rs. 234 crore in FY11 mainly on account of a 105% increase in its lending book. Gross NPAs and Net NPAs of the company stood at 0.61% and 0.44% respectively as on March 31, 2012 as against 0.37% and 0.30% respectively as on March 31, 2011.
The company has made a significant branch expansion in the gold loan business last year which resulted in 79% increase in its operating costs to Rs. 297 crore in FY12 as compared to Rs. 166 crore in FY11. This resulted in a very tepid improvement of 14% in company’s net profit after taxes (PAT) which stood at Rs. 105 crore in FY12 as compared to Rs. 92 crore in FY11.
Here is the link to check the latest audited financial results of the company ending March 31, 2012.
About the NCD Issue
The size of this NCD issue is Rs. 500 crore including a green-shoe option of Rs. 250 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 bonds offer a coupon rate of 12.75% per annum in three different options – payable monthly, payable annually and cumulative annually payable on maturity. Unlike Shriram Transport Finance NCD, this issue will not offer any additional incentive to the retail investors and the same rate of interest will be offered to all the categories of investors. This uniform rate of interest should make it attractive for the Category I – institutional investors and Category II – non-institutional investors. Under the cumulative interest option, the investors will get Rs. 2054.50 at the time of maturity. The maturity period in all the three options will remain 72 months only.

Option	I	II	III
Rate of Interest	12.75%	12.75%	12.75%
Interest Payment	Monthly	Annual	Cumulative
Effective Yield	13.52%	12.75%	12.75%
Tenure	72M	72M	72M
Redemption Amount	Rs. 1000	Rs. 1000	Rs. 2054.50

The interest earned will be taxable as per the tax slab of the investor but the company will not deduct any TDS on it as is the case with all of the listed NCDs taken in a demat form. The company has decided to keep the minimum investment requirement of Rs. 5,000 (or 5 bonds of face value Rs. 1,000) which has made it easily investable from the small retail investors’ point of view.
Like most of the NCDs, these bonds are going to list on both the stock exchanges – NSE and BSE. Investors will have the option to apply these bonds in physical form also.
25% of the issue is reserved for the “Reserved Individual Portion” i.e. for the individual investors investing up to Rs. 5 lakhs and another 25% of the issue is reserved for the “Unreserved Individual Portion” i.e. for the individual investors investing above Rs. 5 lakhs. 40% 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. The allotment will be made on a “first-come-first-served” basis.
IIFFL is a relatively new company with a limited operational track record. The issue has been rated ‘AA-/Stable’ by CRISIL and ‘AA- (Stable)’ by ICRA. One notable point I want to emphasise here is that unlike last year and unlike all NCD issues of the past, these NCDs qualify as “Unsecured Redeemable Subordinated Debt” in nature or in other words, in the event of default, no charge upon the assets of the company would be created in connection with these NCDs.
I’ve picked this text from the DRHP

“The NCDs will be in the nature of subordinated debt and hence the claims of the holders thereof will be subordinated to the claims of other secured and other unsecured creditors of our Company. Further, since no charge upon the assets of our Company would be created in connection with the NCDs, in the event of default in connection therewith, the holders of NCDs may not be able to recover their principal amount and/or the interest accrued therein in a timely manner, for the entire value of the NCDs held by them or at all. Accordingly, in such a case the holders of NCDs may lose all or a part of their investment therein. Further, the payment of interest and the repayment of the principal amount in connection with the NCDs would be subject to the requirements of RBI, which may also require our Company to obtain a prior approval from the RBI in certain circumstances.”

Though this feature should not make this issue an untouchable one to invest in but the investors should exercise extreme caution while investing in such issues as extreme adverse business conditions related to gold loan business or housing loan business might put IIFFL’s fortunes in trouble and it would become difficult for the investors to recover their hard earned money in the form of investment.
The issue closes on September 18, 2012.
Performance of the bonds issued last year
As I mentioned in the Shriram Transport Finance NCD post also, as many as ten such NCD issues had hit the markets last year issued by companies like Shriram Transport Finance, Shriram City Union Finance, Muthoot Finance, Manappuram Finance, Religare Finvest and India Infoline Investment Services Ltd. All the issues, except Shriram Transport Finance NCDs, listed at a discount and that too at a very deep discount of 5-8% in some cases. Many of them have still not been able to recover from those losses. They are yielding higher than 13% even now.
NCDs issued last year by IIFFL offering 11.90% coupon were secured in nature and are currently yielding 13.75% under the 60 months reserved individual option with the price quoting at Rs. 1001.10. It is the most traded option among all the options offered last year.
Next 20-30 days will witness three more such NCD issues seeking your investment offered by Shriram City Union Finance, Muthoot Finance and Religare Finvest. These companies have already filed their respective draft red herring prospectus (DRHP) with SEBI and almost all the regulatory formalities have been completed. Let us see how these NCDs perform once they get listed and if they are able to give any kind of much needed relief from the sinking stock prices or escalate our pain by listing at a discount again.

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm