Aadhar Housing Finance NCD Sep 2018 Public Issue : Details & Review

The interest rates on Bank fixed deposits may have touched the lowest levels (showing some signs of an up-tick now) and the interest rates on popular small savings schemes are not very attractive either. Also, Tax Free Bond Issues are not available now. This is inducing many small investors to look out for better fixed income products which can give decent fixed rate of return.

NCDs or Non Convertible Debentures are one of the fixed income options that can satiate investors’ hunger for better yield.

Fixed income investors are spoilt for choice with three public issues of non-convertible debentures (NCDs) worth Rs 18,500 crore lined up for launch in the next 30-45 days to raise money to meet credit demand.

The upcoming NCDs that are lined up are by TATA Capital Finance, Aadhar Housing Finance and Indiabulls Commercial.

The public Issue of TATA Capital will be open for subscription from 10th September, 2018 to 21st September, 2018. (Related Article : ‘TATA Capital Finance NCDs Sep 2018 Public Issue : Details & Review‘)

Aadhar Housing Finace Ltd is also proposing to offer latest NCD issue. Aadhar HFL is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 14th September, 2018 to 28th September, 2018.

What is a Debenture?

Debenture is a type of Debt instrument which offers a fixed rate of interest for a specified tenure. Companies or governments use debentures to borrow money. Debentures are simply loans taken by the companies and do not provide the ownership in the company.

What are NCDs?

Debentures are of two types Convertible and Non-Convertible. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides attraction to the investor but yield lower interest rates. Non convertible debentures does not convert into equity shares thus can yield a higher interest rate.

An NCD can be Secured or Unsecured. Secured NCDs are backed by the issuer company’s assets to fulfill the debt obligation unlike unsecured NCDs. Below is a short video on ‘basics of NCDs’.

Aadhar Housing Finance NCD Sep 2018 Public Issue – Key Features

Aadhar Housing Finance Limited (AHFL) is an housing finance company registered with the NHB and focused on providing affordable housing financing products for the Economically Weaker Section (EWS) and Lower Income Group (LIG) segment in India, in tier 2 to tier 4 cities and towns.

The Company was incorporated as “Vysya Bank Housing Finance Limited” and it commenced its operation from November 27, 1990. In the year 2003, Dewan Housing Finance Corporation Limited (DHFL) acquired the Company from ING Vysya Limited and the Company was renamed as DHFL Vysya Housing Finance Limited.

In the Fiscal 2018, the erstwhile Aadhar Housing Finance Limited, a company promoted by DHFL with strategic investment by International Finance Corporation (IFC), merged with the Company on November 20, 2017. Pursuant to the merger, the Company was renamed as Aadhar Housing Finance Limited on December 4, 2017.

AHFL offers Housing Loans i.e. secured finance primarily to salaried and self-employed individuals for the purchase of plots, construction, improvement and extension of homes, new and resalable flats secured against mortgage of the same property, and project finance for residential buildings to developers. The company also provides Other Property Loans including loan against property (LAP) to salaried or self-employed professionally qualified individuals and others, against mortgage of property of the borrower and insurance component of Housing Loans.

Below are the few important details about upcoming Aadhar Housing Finance September 2018 NCD issue (FY 2018-19) ;

• NCD Issue opening Date : 14th Sep, 2018
• Issue Closes on : 28th Sep, 2018.
• Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.25% to 9.75% depending on the category of investor and tenure of the NCDs.
• Issue Size : Base Issue size is Rs 500 cr (with an option to retain oversubscription amount of up to Rs 1,400 cr for Tranche-1)
• Mode of Issue : Demat
• Face Value or Issue Price of one NCD is Rs 1,000.
• Available Tenor options : 3 years to 10 years
• Frequency of Interest payment : Monthly & Annual. Cumulative option is available for 3 year tenure NCD series.
• Minimum Application size : Rs 10,000 (10 NCDs) and in multiple of Rs 1,000 thereafter.
• Listing : The NCDs are proposed to be listed on BSE stock exchange.
• Security & Asset Cover : The Company and Promoter will create and maintain appropriate security in favour of the Debenture Trustee for the NCD Holders on the assets adequate to ensure required asset cover for the Secured NCDs.
• Credit Ratings : Credit Rating of ‘CARE AA+ (SO)/ Outlook: Stable’ for an amount of Rs 3,000 Crore, by CARE Ratings Limited (“CARE”) and ‘BWR AA+ (SO) Outlook: Stable’ for an amount of Rs 3,000 Crore, by Brickwork Ratings India Private Limited (“Brickwork”).
• Issue Allocation Ratio : 35% of the Issue is for retail investors & 35% for HNIs (HNIs – individuals (applying for an amount of > Rs 10 lakh).
• PUT & Call options : No Put & Call options are available. (What are Put & Call options? – NCDs can have Put or Call options. If a company issues a ‘Callable Debenture’, it means that it can be redeemed by the Issuer (company) before the bond’s maturity. A debenture with a ‘Put option’ works in exactly the opposite manner, wherein the investor can sell the bond to the issuer at a specified price before its maturity.)
• Allotment of NCDs is on ‘first come, first serve’ basis.
• NRIs are not eligible to apply to this NCD issue.

Rate of Interest on latest NCD Issue by Aadhar Housing Finance

Under the three year tenure NCD series (cumulative option), if you invest Rs 1,000 then you will receive Rs 1,316 on the maturity date.

Should you invest in Aadhar Housing Finance NCD Issue (Sep 2018)?

As we all are aware that interest rates on fixed income securities have reached their lowest levels. The bank interest rates are showing some signs of up-trend, hence it is advisable to avoid investing in medium to long-term NCDs now. Also, the NPA (Non-Performing Assets) related problems have been plaguing the banking sector (NBFCs as well). Considering this scenario, if you are looking for regular interest income and are in 10% or 20% income tax slab rate, you may consider investing in up to three year (cumulative/non-cumulative) Secured NCDs.

Given a choice, I prefer investing in TATA Capital Finance NCD (Sep 2018) Issue to Aadhar Housing Finance Issue. The conservative investors  who are looking for fixed income alternatives, can consider investing in these (TATA) NCDs, as it is not easy to find many ‘AAA’ rated issues these days offering coupon rates higher than the bank FDs.

Before investing in NCDs, kindly calculate your post tax returns on debentures and take your decision, as the interest payouts are taxable.

Post-tax returns = Pre-Tax returns * { (100-Tax Rate) / 100 }

Are NCDs totally risk-free? – No, they are not risk-free. These carry higher risk than bank deposits. The main risk with NCDs is default risk. The issuer may not be able pay the interest payments.

NCDs are relatively safer assets than Stocks and mutual funds but they are riskier than bank FDs and Government bonds. NCD Issuers normally do not default but when things go drastically wrong, they may face problem in paying the investors.

The main risk with NCDs is default risk. The issuer may not be able to pay the interest payments. NCD Issuers, especially the top business groups, normally do not default but when things go drastically wrong, they may face problem in paying the investors. In such a scenario, secured NCD holders (if any) would be given higher priority than the holders of Subordinated NCDs.

Kindly keep in mind all the above points when investing in NCDs. Also, do not invest your entire savings or investible surplus in one NCD issue alone.

You may consider other alternative fixed income avenues like Debt oriented Mutual Funds, Hybrid Mutual Funds, Post office MIS scheme, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc.,

Have you invested in any of the recent Public Issues of NCDs (Shriram Transport Fin / JM Financial / DHFL)? Do you prefer NCDs to Bank FDs? Do you believe that upcoming NCDs may offer even better interest rates? Kindly share your views. Cheers!

Continue reading :

• What are NCDs? How to buy best NCD? Tax Implications on NCDs
• List of Best Investment Options
• Best Lump sum Investment options for Retirees/Senior Citizens to get Regular Income?
• How to check if a Company can collect Deposits from the Public? (Company FD Schemes)

(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post first published on : 06-Sep-2018) (This article is based on limited available information, if required, the content will be edited.)