India Infoline Finance NCD Jan 2019 Public Issue : Details & Review

The interest rates on Bank fixed deposits may have touched the lowest levels (showing 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 were spoilt for choice with four public issues of non-convertible debentures (NCDs) worth more than Rs 20,000 crore were launched during last 100 days to raise money to meet credit demand. The recent NCD Issues were offered by TATA Capital, Aadhar Housing, Indiabulls Commercial, Shriram Transport Finance, Manappuram Finance etc.,.

India Infoline Finance Ltd (IIFL) is proposing to offer latest NCD issue. IIFL is going to offer Secured / Unsecured redeemable NCDs. The proposed public issue of IIFL Bonds will be open for subscription from 22nd January, 2019 to 20th February, 2019.

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’.

India Infoline Finance NCD Jan 2019 Public Issue – Key Features

India Infoline Finance Ltd is a subsidiary of IIFL Holdings Ltd. IIFL has a strong distribution network of 1378 branches across India and offers products like Home loan, Gold loan, Commercial Vehicle loan, Small and Medium Enterprise loan, Capital Market loan, Construction & Real Estate loan, Digital Finance, Loan Against Property and Microfinance. It has 2 subsidiaries viz. IIFL Home Finance Ltd (IIHFL) (100%) and Samasta Microfinance Ltd (97.37%).

Below are the few important details about upcoming India Infoline Finance Jan 2019 NCD issue (FY 2018-19) ;

• NCD Issue opening Date : 22nd January, 2019
• Issue Closes on : 20th Feb, 2019.
• Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.5% to 10.50% depending on the category of investor and tenure of the NCDs.
• Issue Size : Base Issue size is Rs 250 cr (with an option to retain over-subscription amount of up to Rs 1,750 cr for Tranche-I.)
• Mode of Issue : Demat only
• Face Value or Issue Price of one NCD is Rs 1,000.
• Available Tenor options : 39 months / 5 & 10 years.
• Frequency of Interest payment : Monthly & Annual. Cumulative option is available for 39 month 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 NSE & BSE stock exchanges.
• 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. No such provision is provided for Unsecured NCDs.
• Credit Ratings : The NCDs have been rated “AA/Stable” by CRISIL and ICRA,”AA+/Stable” by Brickwork.
• Issue Allocation Ratio : 30% of the Issue is for retail investors & 30% for HNIs (HNIs – individuals (applying for an amount of > Rs 10 lakh).
• PUT & Call options : Call option is available. Put option is not 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.)
  • All options in this IIFL NCD Issue comes with a ‘Call option’. This means that IIFL can withdraw its NCDs mid-way. Its 39-month NCD can be called back after 24 months, 60-month NCDs can be called back after 30 months and 120-month NCDs can be called back after 66 months. 
• Allotment of NCDs is on ‘first come, first serve’ basis.
• NRIs are not eligible to apply to this NCD issue.

Latest IIFL NCD Issue (Jan – Feb 2019) – Coupon Rates

Debentures & Taxation 

• TDS is not applicable on the listed debentures’ interest payouts (which are in Demat form). Else, TDS will be applicable if the interest exceeds the threshold limit of Rs.5,000/- in a financial year.
• Interest earned on NCD bonds is taxable as per the tax slab of the investor.
• If you sell NCDs on stock exchange before one year from the date of purchase, Short Term Capital Gains Tax is applicable. Tax rates depend on the tax slab you fall into.
• If you sell NCDs on stock exchange before maturity but after one year, Long Term Capital Gains Tax (if any) at 20% with indexation & 10% without indexation is applicable.

Should you invest in India Infoline Finance’s Latest NCD Issue (Jan 2019)?

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). Also, the current cash/liquidity crunch may have a deeper impact on NBFCs businesses in the near future.

Considering this scenario, if you could afford to take some risk, looking for regular interest income and are in 10% or 20% income tax slab rate, you may consider investing in 39 month NCD Series. Kindly stay away from Unsecured NCD series.

You need to note that all options in this Issue come with a CALL option. If the interest rates go down, then the company might cancel its NCD because it can borrow again at lower interest rates. It is beneficial for the company, but not beneficial to the investor. This is because the investor will then have to re-deploy the money at lower interest rates.

Kindly understand the risks associated with NCDs and then take informed decision.

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, PPF, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc.,

Have you invested in any of the recent Public Issues of NCDs (Mahindra Finance (Jan 2019 Issue) / Manappuram Finance / Shriram Transport Finance / TATA Capital  / Indiabulls Commercial )? 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 : 18-January-2019) (This article is based on limited available information, if required, the content will be edited.)