10.5% Indiabulls Consumer Finance NCD July – August 2019 Public Issue : Details & Review

The Reserve Bank of India (RBI) has recently released its second bi-monthly rate review of financial year 2019-20. The key announcement under the policy is the rate cut by 25 basis points (1 bps is 0.01%). This is the third consecutive rate cut from RBI , after a rate cut in February & April of 2019.

In view of the above, most of the banks and corporates may reduce the interest rates on their deposits schemes, Bonds, NCD Public Issues etc.,

SBI cuts interest rates on Fixed deposits pic
Latest news – SBI cuts interest rates on Fixed deposits

This may induce 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. But, don’t forget this rule of thumb – “the higher the risk, the higher the potential return,”

Fixed income investors were spoilt for choice with four public issues of non-convertible debentures (NCDs) worth around Rs 25,000 crore were launched in the recent past to raise money to meet credit demand. The recent NCD Issues were offered by L&T Finance, Muthoot Finance, Indiabulls Consumer Finance, Manappuram Finance, India Infoline, TATA Capital, Indiabulls Commercial, Shriram Transport Finance etc.,

Indiabulls Consumer Finance Ltd(ICFL) is proposing to offer latest NCD issue. ICFLis going to offer Secured redeemable NCDs. The proposed public issue of these Bonds will be open for subscription from31st July, 2019 to 30th August, 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 typesConvertibleandNon-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 beSecuredorUnsecured. 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’.

Indiabulls Consumer Finance NCD July – August 2019 Public Issue | Key Features

Indiabulls Consumer Finance Ltd (ICFL) is part of the Indiabulls Ventures group, which is a prominent financial services company providing brokering, lending and wealth management businesses, amongst other businesses.

The company focuses primarily on providing personal loans, business loans (unsecured SME loans and secured SME loans) and other loans. ICFL’s AUM as per Ind AS was Rs 4,017.53 crore as at March 31, 2018, and its AUM as per IND AS was Rs 11,227.73 crore as at March 31, 2019, resulting in increase by 179%.

As at March 31, 2019, ICFL’s gross NPAs as a percentage of its AUM as per Ind AS was 0.75%, and its net NPAs as a percentage of its AUM as per Ind AS was 0.24%. As of March 31, 2019, 2018 and 2017, its capital to risk (weighted) assets ratio was 37.7%, 33.52% and 90.03% respectively.

Below are the few important details about upcoming Indiabulls Consumer Finance NCD July 2019 (FY 2019-20);

  • NCD Issue opening Date : 31st July, 2019
  • Issue Closes on : 30th August, 2019.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.81% to 10.5% depending on the category of investor and tenure of the NCDs.
  • Tranche III Issue Size: Base Issue size is Rs 100 cr (with an option to retain over-subscription amount of up to Rs 900 cr for Tranche-III.)
  • Mode of Issue : Demat only
  • Face Value or Issue Price of one NCD is Rs 1,000.
  • Available Tenor options : 400 days & 24 / 36 / 60 months
  • Frequency of Interest payment : Monthly & Annual. Cumulative options are also available.
  • 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 & NSE 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.
  • Credit Ratings : Credit Rating of “CARE AA; Outlook: Stable” for an amount of Rs. 3,000 crore, by CARE Ratings Limited and “BWR AA+; Outlook: Stable” for an amount of Rs. 3,000 crore, by Brickwork Ratings. (CARE AA is not the highest credit rating!)
  • 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 : Put & Call options are 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.)
  • Allotment of NCDs is on ‘first come, first serve’ basis.
  • NRIs are not eligible to apply to this NCD issue.

Latest Indiabulls Consumer Finance NCD July – August 2019 Issue –Coupon Rates

Indiabulls Consumer Finance NCD July - August 2019 Public issue 10.5% Indiabulls Latest NCD Issue
Indiabulls Consumer Finance NCD July 2019 Public issue Interest rates

The company shall allocate and allot Series V NCDs (36 Months – Annual interest payout option) wherein the applicants have not indicated their choice of the relevant NCD series.

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 taxableas 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 10% without indexation is applicable.
    • Listed Debentures : Holding period 1+ year to qualify as LTCG. LTCG tax rate @ of 10% without indexation & STCG tax rate is as per ‘income tax slab rate’.
    • Unlisted Debentures : Holding period of 3 year to qualify as LTCG. STCG is taxed @ as per income tax slab rate. LTCG of 20% without indexation.

Should you invest in Indiabulls Consumer Finance NCD July/August 2019 Issue?

As we all are aware that interest rates on fixed income securities might have reached their lowest levels. The interest rates offered on Secured NCDs look attractive when compared to other fixed income products like bank deposits or small saving schemes .

But, the NPA (Non-Performing Assets)related problems have been plaguing the banking and NBFC sector. The current cash/liquidity crunch (DHFL / IL&FS Saga) may also have a deeper impact on NBFCs businesses in the near future.

Also, the latest allegation by Subramanian Swamy on the possible wrong-doing by Indiabulls Housing is sending some jitters across the NBFC sector. Though this is just an allegation, kindly do not take it lightly. ‘There is no smoke without fire.’

subramanian swamy accuses indiabulls housing of wrongdoing pic

Just a couple of months back Indiabulls Commercial Credit had come up with its NCD Issue in June 2019. The interest rates offered were around 10 to 10.6%. Though the RBI has cut repo rate, you can notice that Indiabulls commercial Fin is still offering rates of around 10%, which are slightly higher than the most recently concluded NCD Issues. This shows that NBFCs are finding it tough to get the credit and hence are ready to offer attractive rates through NCD offerings.

Considering all these pointers, given a choice, I will not put my money in this NCD issue. You may ignore subscribing to this issue.

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

Before investing in NCDs, kindlycalculate your post tax returnson 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 andmutual fundsbut 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. Ex – DHFL’s case.

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. But, do not invest your entire investible surplus in one Company’s NCD Issue. Also, avoid investing in long-tenure NCD options.

You may consider other alternative fixed income avenues like Debt oriented Mutual Funds, Hybrid Mutual Funds, Tax Free Bonds, Post office MIS scheme, PPF, Post office Senior Citizen Savings Scheme, 7.75% GoI Bonds etc., as per your risk profile and investment horizon.

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(Post published on : 30-July-2019)

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