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9.7% Edelweiss Financial Services Secured NCDs: Should You Invest?
There is an NCD issue offering highly lucrative returns as against the current low interest rate regime in the fixed income investment space. Before we go further down and detail this NCD, we will briefly describe what an NCD is?
NCDs or non-convertible debentures are opted by NBFCs or corporate for raising funds and investors subscribing to them are eligible for coupon payment. These are referred to as non-convertible as they cannot be converted into company equity or stocks. Further, these NCDs can be secured or unsecured, but herein this company has come up with Secured Redeemable NCD.
Here is a low down on all the details concerning the NCD that we are talking about:
Issue details:
Edelweiss Financial Services has come up with an NCD issue for raising funds aggregating to up to Rs. 500 crore. The issue offer period is from December 6, 2021 to December 27, 2021
FV- Rs. 1000
Minimum investment- Rs. 10000 or 10 NCDs across all series
Coupon range: 8.75-9.7 percent per annuum + 0.2 percent incentive per annuum
Total of 10 series available under the NCD issue on offer with varied coupon rate across tenures of between 2 year to 10 years. Further, investors as per their need can opt for monthly, annual or cumulative pay-out.
Interest rate structure:
| Series | I | II | III | IV* | V | VI | VII | VIII | IX | X |
|---|---|---|---|---|---|---|---|---|---|---|
| Frequency of Interest Payment | Annual | NA | Monthly | Annual | NA | Monthly | Annual | NA | Monthly | Annual |
| Tenor | 24 months | 24 months | 36 months | 36 months | 36 months | 60 months | 60 months | 60 months | 120 months | 120 months |
| Coupon (% per annum) for NCD Holders in Category I, II, III & IV | 8.75% | NA | 8.75% | 9.10% | NA | 9.15% | 9.55% | NA | 9.30% | 9.70% |
| Effective Yield (per annum) for NCD Holders in Category I, II, III and IV | 8.75% | 8.75% | 9.10% | 9.09% | 9.10% | 9.54% | 9.54% | 9.55% | 9.70% | 9.69% |
Rating of Edelweiss Financial Services NCD issue:
Crisil has accorded the NCD Crisil AA-/ Negative called as CRISIL double A minus rating with Negative outlook)" and "ACUITE AA/ Negative (pronounced as ACUITE double A rating with Negative outlook). So, this is a big negative for the issue.
Should you subscribe to the NCD offer of Edelweiss Financial Services for up to 9.7 percent annuum coupon rate?
The issue being a secured one is backed by the company's assets say in case the company sees financial crisis then its NCD investors shall not be at major risk. Nonetheless as highlighted the security extended to debt investors is as rights on general receivables which is difficult to predict in a situation of payment default.
Currently the business environment as well as the industry in which the entity operates is highly uncertain. Furthermore, the company's businesses are operating with low margin be it wealth, capital markets etc. Insurance line of the company's business is still a loss making unit. And hence investors without being carried away by the higher interest rates can simply avoid the issue in case they are a conservative lot. But if you have an appetite you can certainly bet on the issue for a shorter span of time, after giving due thought to how much you allocate to the security.
Additionally experts suggest that in your entire debt portfolio, you should not allocate over 5-10% towards this NCD and this is also if you can afford the inherent risk
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