9.85% ECL Finance (ECLF) NCD Issue Opens: Should You Invest?

ECL Finance Ltd, a non-banking finance company, has come up with a public issue of NCD or non-convertible debentures offering up to 9.85% interest rate to raise up to Rs. 2000 crore. In a company release, it said, the public issue of secured redeemable non-convertible debentures (NCDs) of the face value of Rs 1,000 each, aggregating to Rs 5,000 million, with an option to retain over-subscription up to Rs 15,000 million aggregating to a total of Rs 20,000 million".

9.85% ECL Finance (ECLF) NCD Issue Opens: Should You Invest?

The issue opens on July 24 and closes on August 16, 2018.

Now, here is a breakdown on whether or not you should invest in the ECL NCD issue:

About the company: The NBFC arm of Edelweiss Financial Services offers a wide range of secured corporate and retail loan products that are customized to meet the needs of different borrowers including corporate, SMEs and individuals.

Issue objective: The funds raised via the NCD issue will be put towards onward lending, for refinancing the existent borrowing as well as other general corporate purposes.

Features:

• Issue size: Rs 500 crore with option to retain over-subscription up to Rs 2,000 crore
• Price or face value of each bond is Rs. 1000 and investors need to invest in a minimum of 10 bonds i.e. Rs. 10000. And thereafter in multiples of 1 bond. For retail investor category, the maximum investment limit is Rs. 10 lakhs.
It is to be noted that 50% of the issue is reserved for retail category while QIB and corporate portion amounts to 20% each. 30% of the issue is reserved for HNIs
• Interest Rates for Retail Investors: 9.25% to 9.85% per annum depending on the tenure
• Allotment will be on first come first serve basis
• Credit Rating: "CRISIL AA/Stable" and "[ICRA]AA (stable)"
• NCDs will be listed on both BSE and NSE making the instrument highly liquid.
There will be capital gains tax on redemption of the investment via the secondary market route
• NRIs not eligible to invest in this NCD issue
• Demat account is not mandatory for investment in these NCDs. However, the investment made via the demat route shall not attract TDS implications. Though, interest earnings shall be taxable in the hands of the investor.

Interest rate

There are 8 options of investment in ECL Finance NCD depending on the tenure and frequency of interest payment

Series	I	II	III	IV	V	VI	VII	VIII
Tenure	3 years	3 yrs	5 yrs	5 yrs	5 yrs	10 yrs	10 yrs	3 yrs
Interest payment frequency	Cumulative	Annual	Mthly	Cumulative	Annual	Monthly	Annual	Annual
Coupon % per annum	NA	9.45%	9.25%	NA	9.65%	9.43%	9.85%	Benchmark MIBOR + spread of 2.50%
Effective yield per annum	9.45%	9.45%	9.65%	9.65%	9.65%	9.85%	9.85%	Benchmark MIBOR +spread of 2.50%

Series VIII offers floating interest rate benchmarked to MIBOR or Mumbai Inter bank offered rate

For any of the chosen tenure, it is to be noted that these debt instruments offer higher yield than bank FDs which even in the current scenario when the rates have reversed trend to offer high interest rate do not offer yield as high as provided by ECL NCD issue.

Conclusion

Some of the positives with the NCD issue such as 'AA' credit rating that is good enough to assure the safety of the instrument plus the secured nature of NCD make it a good bet. Also the interest rate is higher than bank FDs by 2 to 3 percentage points. However, in the rising interest rate regime, when banks have started to increase interest rate on FDs it will not be a good idea to invest in the instrument for long term i.e. 10 years.

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