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10% Muthoot Finance NCD Opens: Should You Invest?
Muthoot Finance, a leading gold financing NBFC firm, has opened its NCD issue to raise Rs. 100 crore with an option to retain an addition subscription of up to Rs. 900 crore i.e. in total Rs. 1000 crore through the green shoe option. In its 3rd tranche for the September-October issue, the company is issuing secured NCDs. It comes with 10 different options, which contains 24 months, 38 months, 60 months and 90 months tenure NCDs.
Here is the breakdown and whether is Muthoot Finance a safe bet or not given the past NBFC crisis of IL&FS:
Being a secured NCD it warrants some degree of safety. Also, amid falling interest rate, wherein this time around most banks both from the private and public space have been seen cutting down on rates on fixed deposits twice in a month's time, the attractiveness of the instrument cannot be denied with 10% yield per annum.
Salient features of the NCD: The issue opened today and will close on October 30, 2019. The face value of the NCD bond is Rs. 1000 and minimum investment in the issue is for 10 bonds i.e. Rs. 10,000. Here after individuals can invest in multiples of 1 bond. These are liquid as these are tradeable on the BSE.
NRIs cannot invest in such NCDs. For the issue, lead managers are Edelweiss Financial as well as AK Capital Services.
Credit rating: ICRA has rated these secured redeemable NCDs of Muthoot as ICRA AA (Stable) while Crisil has rated it as Crisil AA/stable. Both of these rating signify high safety in the instrument in respect of payment of obligation by the gold financing firm. Note these ratings undergo re-rating from time to time.
Interest payment schedule for 10 different options under the NCD issue: Interest on these NCDs is payable monthly, yearly or on maturity.
| Option | Tenure (IN MONTHS) | Interest payment | Coupon rate |
|---|---|---|---|
| I | 24 | Mthly | 9.25% |
| II | 38 | Mthly | 9.50% |
| III | 60 | Mthly | 9.75% |
| IV | 24 | Annual | 9.5% |
| V | 38 | Annual | 9.75% |
| VI | 60 | Annual | 10% |
| VII | 24 | Cumulative | NA |
| VIII | 38 | Cumulative | NA |
| IX | 60 | Cumulative | NA |
| X | 90 | Cumulative | NA |
Financial profile: ts revenues for the quarter ended June 2019 was at Rs 2,072.1 Crores compared to the previous year quarter ended Jun-18 of Rs 1,785.6 Crores. Its profits for the quarter ended Jun-19 was at Rs 563.3 Crores compared to the previous year quarter ended Jun-18 of Rs 517.6 Crores.
Should you invest in Muthoot Finance NCD?
For the retail investors, the portion that can be subscribed is allowable up to the extent of 50%.It shall be at best to park only a limited corpus in these NCDs though it promises to return a good enough coupon rate of 10% for 5 year term. Nonetheless, one cannot ignore the risk that is inherent with such gold loan companies' as they face significant pressure when gold rates fall. So, do note your risk profile before investing in such a deal.
There is also another NCD issue open at this time as that of Muthoot Minicorp that offer 11.03% yield for a 3 year term.
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