Shriram City Union Finance's non-convertible debentures (NCD) for August 2019 opened its Tranche II on 21 August. Priced at Rs 1,000 per NCD, it can fetch a yield as high as 9.86 percent.
Should you invest in the NCDs of this non-banking finance company (NBFC) that primarily lends to small businesses?
- Issue period: 21 August to 19 September 2019
- Type of security: Secured redeemable non-convertible debentures
- Face Value: Rs 1,000 per NCD
- Minimum bid size: 10 NCDs (worth Rs 10,000)
- Coupon rate: 9.55 to 9.85 percent
- Base Issue Size: Rs 1,000 million (with option to retain Rs 9,000 million over-subscription)
- Ratings: 'CARE AA+ Stable' by CARE and 'CRISIL AA/Stable' by CRISIL
- Book Running Lead Manager: A.K. CAPITAL SERVICES LTD and Edelweiss Financial Services Limited
|Frequency of Interest Payment||Annual||Cumulative||Annual||Monthly||Cumulative||Annual||Monthly||Cumulative|
|Tenure||24 months||24 months||36 months||36 months||36 months||60 months||60 months||60 months|
|Coupon (% per annum)||9.55||NA||9.70||9.30||NA||9.85||9.45||NA|
|Effective Yield (% per annum)||9.54||9.55||9.69||9.70||9.70||9.84||9.86||9.85|
|Amount on Maturity (Rs)||1,000.00||1,200.45||1,000.00||1,000.00||1,320.50||1,000.00||1,000.00||1,600.40|
The issue is allocated in the proportion of 40 percent to retail investors, 40 percent to HNIs, 10 percent to institutional investors and 10 percent to non-institutional investors.
Should you subscribe?
Shriram City Union Finance's Tranche II issue of the August 2019 NCD has been rated 'CARE AA+ Stable' by CARE and 'CRISIL AA/Stable' by CRISIL. The company has a strong reputation as a borrower. It lends to small businesses and also provides loans for vehicle purchases and housing. However, its NPA (non-performing assets) level is among the highest in the NBFC sector.
The high interest rate offered comes with the risk that the recovery of the loans it lends are highly dependent on the performance of the individual enterprise, the particular industries and also the country's economy.
Further, the business is subject to various regulatory and legal requirements governing the banking and financial services industry in India. Any future regulatory changes may have a material adverse effect on the results of operations and financial condition.
Read all the risks in the prospectus link provided above.
While NCD investments allow you to diversify your assets and comes with the oppurtunity to earn high returns, only those with high risk appetite should bet on this NBFC's NCD.
How to apply?
You can apply through your broker you maintain a demat account with.
What are NCDs?
Companies use non-convertible debentures to raise long-term capital for their business. In simple words, it is like a loan that the company borrows from the public which it will return with interest. These come with a fixed interest rate and tenure. It is like a fixed deposit with a bank in a way, but less secure.
Why is it called non-convertible?
Companies give the option to convert debentures issued into shares after a certain time to the owners of these debentures. NCDs do not come with this option. Further, these are divided as secured and unsecured NCDs. Secured NCDs are backed by the company's assets and unsecured ones are not. The unsecured ones are paid a higher interest rate because they hold higher risk.