9.25% Edelweiss NCD Issue Opens: Should You Invest?

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    NCD or non-convertible debenture is a long-term source of financing and companies raise funds by coming up with a public issue of NCDs. Similar NCD issue has been kept open for public by Edelweiss Retail Finance Ltd. which is the lending arm of the larger Edelweiss Group.

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


    The company through the issue plans to mop up Rs. 250 crore with an option to retain over-subscription up to Rs 250 crore, thus making it a total of Rs. 500 crore.

    The issue offering secured NCDs opens on March 7, 2018 and closes on March 22, 2018 with an option to wrap up the issue early in case it receives full subscription.

    Face value of the bond is Rs. 1000 and an investor can invest in a minimum of 10 bonds i.e. minimum investment of Rs. 10000 and in multiples of 1 bond thereafter.

    NCDs will be listed on both the BSE and NSE making the instrument highly liquid


    Purpose of the Edelweiss NCD issue:

    75% of the raised funds shall be used for repaying existing loans and other lending activities while the remaining shall be used for general corporate purposes.

    Interest rates on Edelweiss March 2018 NCD issue:

     Six options available depending on the tenure and interest payments


    Tenure 3 years 3 years 5 years 5 years 10 years 10 years
    Interest Mode Monthly Annual Monthly Annual Monthly Annual
    Effective Yield 8.75% 8.75% 9% 9% 9.25% 9.25%

    For any of the chosen tenure, it is to be noted that these debt instruments offer higher yields than bank FDs which even in the current scenario when the rates have reversed trend to offer high interest rate offer not over 7% yield.

    Nonetheless, in comparison, the previous NCD issue of SREI offered better returns of upto 9.5% for 10 years lock-in in the monthly coupon frequency mode.


    Other aspects to be considered before investing in the Edelweiss NCD March series

    For the retail investor class, the company has reserved a maximum of Rs. 250 crore for subscription.

    NRIs are not allowed to invest in the instrument.

    Both credit rating agencies that include ICRA and CRISIL have rated the NCD as ‘AA' with stable outlook. Further the secured nature of the NCD issue makes it a safe bet.

    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.


    In the rising interest rate scenario, the company could have still offered a higher rate by 50 basis points to compensate for the higher risk these NCDs rcarry. Nonetheless, given the correction in the equities segment which is still overdue, if you fall short of investment options and have the risk appetite for debt instruments such as NCDs you can park money but with a time frame of maximum 3 or 5 years.



    Story first published: Thursday, March 8, 2018, 13:36 [IST]
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