Non-Convertible Debentures are an attractive proposition with high-interest rates. However, with the pessimism around non-banking financial companies (NBFCs) in the recent past after IL&FS episode, one can be skeptical about putting money in NCDs.
JM Financial Credit Solutions have opened their NCD issue (Tranche II) on 20 November with a coupon rate of up to 10.25 percent and is looking to raise up to Rs 1,250 crore from these bonds. The base size of the issue is Rs 250 crore with an option to retain oversubscription of up to Rs 1,000 crore. JM Financial Credit Solutions is jointly promoted by JM Financial Group and INH Mauritius 1 Fund. In the month of June this year, JM Financial Group raised Rs 7,500 million (Rs 750 crore) in Tranche I.
10.25% JM Financial NCD Issue Details:
- Dates: The NCD issue has opened on 20 November and closes on 20 December 2018. The company's board of directors or the NCD public issue committee has the option to close the issue early or extend it.
- Type of debentures: Secured rated listed non-convertible debentures
- Coupon Rate: Coupon rate refers to the interest payment to be received by the NCD holder. In this issue, the rate ranges from 9.67 to 10.25 percent, based on the category of investor and the tenure of the NCD. The tenure option is between 42 months to 10 years.
|Tenure||Interest payment frequency||Issue price||Coupon rate||Effective yield (per annum)||Redemption amount|
|42 months||Annually||Rs 1,000||10.00%||10.02%||Rs 1,000|
|42 months||Cumulative||Rs 1,000||NA||10.00%||Rs 1,396.15|
|60 months||Annually||Rs 1,000||10.10%||10.09%||Rs 1,000|
|60 months||Monthly||Rs 1,000||9.67%||10.10%||Rs 1,000|
|120 months||Annually||Rs 1,000||10.25%||10.24%||Rs 1,000|
|120 months||Monthly||Rs 1,000||9.81%||10.25%||Rs 1,000|
- Issue Size: The face value of the secured debentures is Rs 1,000 each. As mentioned before, the base size of the issue is Rs 250 crore with an option to retain oversubscription of up to Rs 1,000 crore, aggregating up to Rs 1,250 crore in the Tranche II issue, within a shelf limit of Rs 2,000 crore.
- Mode of issue: The NCDs will be issued in dematerialized form only.
- Minimum amount: The minimum application amount is Rs 10,000 across all options/series and in multiples of one NCD worth Rs 1,000 each.
- Listing: The NCDs are proposed to be listed on BSE.
- Ratings: The JM Financial NCD (Tranche II) has been rated AA/Stable by ICRA and IND AA/Stable by India Ratings for an amount up to Rs 2,000 crore.
- Allocation ratio: Retail investors and high net worth individuals (those who will apply for an amount greater than Rs 10 lakh) have been allotted 40 percent of the issue each. The allotment will be made on a 'first come, first serve' basis.
- Issue managers: AK Capital Services Ltd, JM Financial Limited, Edelweiss Financial Services Limited and Trust Investment Advisors Pvt Ltd.
Things to note
- Before you invest in an NCD issue, it is good to do a background check on the company issuing it and their reason for raising the said amount.
- Do not entirely rely on the credit rating. In the recent past, we have seen the credit ratings cannot be entirely trusted and can be changed at any time. Since the tenure is significant, it is best to do your own research.
- NCDs are nothing like bank FDs. Though secured, the return of the principal amount you invested will depend upon the company's financials.
- Take a calculated risk and do not park a large portion of your investments in NCDs.