Non-convertible debentures or NCDs is a route tapped by corporate to raise funds. Investors who subscribe to these NCDs or invest in them in return get a pre-specified rate of return upon their maturity which is pre-decided. NCDs are referred as though because they cannot be converted into equities or stock. So, given the low interest rate regime, wherein SBI fixed deposit barely fetches a maximum of 5.4% return per annum, here is a fixed income instrument which is likely to hit the market in due course and provide effective of up to 9.7%. Hence we discuss all about the upcoming Edelweiss Financial Services- August 2021- Series 8 NCD issue:
1. About the NCD issue:
Edelweiss Financial Services (EFSL) August 2021 NCD offer period -August 17- September 6,2021.
The NCD issue will be secured in nature, meaning that if there will be a financial crisis situation at the company then investors interest will be put on priority and they will be paid back their principal amount together with the applicable interest rate, if any.
The base size of the NCD will be Rs. 400 crore.
If the investor already owns NCD issue of EFSL or group companies then he or she shall be entitled to an additional pay out of 0.2 per cent per annum.
Lead manager of the NCD: Equirus Capital Private Limited
2. About Edelweiss Financial Services:
It is the country's leading financial services conglomerate catering to both local as global customers. The company's financial services are in areas including credit both retail and corporate, investment and advisory services encompassing asset and wealth management and life and general insurance.
3. Purpose of NCD issuance: Major proceeds from the NCD i.e. 75% will be deployed towards repaying or pre-paying the company's existing debt and the rest shall be utilized for corporate purposes.
ICRA has rated the NCD issue of EFSL as A+ with a negative outlook, while the rating accorded by Acuite Ratings and Research Ltd is AA, again with a negative outlook. The ratings signify that these NCDs come with low credit risk nonetheless they aren't as safe as AAA-rated securities.
The issue offers an effective yield of up to 9.7% i.e. highly lucrative given the low interest rate structure of the economy currently.
Here is given the 8 series of the NCD issue with the pay-out options
|Series||Payment frequency||Tenure||Coupon rate||Effective yield|
|Series 1||Monthly||36 months||8.75%||9.1|
|Series 2||Annual||36 months||9.1%||9.09|
|Series 3||Cumulative||36 months||NA||9.1|
|Series 4||Monthly||60 months||9.15%||9.54|
|Series 5||Annual||60 months||9.55%||9.54|
|Series 6||Cumulative||60 months||NA||9.55|
|Series 7||Monthly||120 months||9.3%||9.7|
|Series 8||Annual||120 months||9.7%||9.69|
Interest income on NCD is taxable similar to fixed deposits. But in the case when the investment is not held until maturity and redeemed within a period of one year from investment date then short term capital gain tax applies and the rate for the same is determined based on the income tax slab applicable to you. For, NCDs sold after 1 year term, LTCG is charged at 20 percent with indexation benefit.
7. Whether or not should you invest in 9.7% Edelweiss Financial Services secured NCDs?
Investors with investible surplus are looking at bagging splendid returns and that too in the short term of may be as less as a day. This can we validated as we lately saw record subscriptions for IPOs, in the hope of huge listing gains in line with the fundamentals of the company going public and the overall bullish market momentum.
Now in the case of NCDs, the gains cannot be realized in a day or so nevertheless, investors may be paid out interest along with principal amount either on a monthly, quarterly, annual or on a cumulative basis.
Coming on to this specific Edelweiss NCD issue that will be thrown open for investment from August 17 (Tuesday), investors need to keep in mind the rating which suggests that the instrument lags on the safety parameter. Furthermore, while the return offered on the instrument is substantially higher when compared to traditional fixed deposits, they are low on liquidity despite being available for trading on the exchanges. Edelweiss NCD is proposed to be listed on NSE.
Experts suggest that at a time when economy is just recovering from the Covid-led fall out, it will not be prudent to lap up instruments with even low-credit risk. Nonetheless if your risk appetite allows, you can deploy a small portion of your investible surplus into the NCD issue for a shorter term horizon of 3 years. Also, note holding NCD for less than a year will not make sense because of the taxation implication.