Manappuram Finance NCD Oct 2018 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 19,000 crore were launched during last 30-60 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 Ltd is proposing to offer latest NCD issue. Manappuram Finance (MFL) is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 24th October, 2018 to 22nd November, 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’.

Manappuram Finance NCD Oct 2018 Public Issue – Key Features

Manappuram Finance Limited (MFL) is one of the major NBFC players in the gold finance business in India. MFL provides loans against the pledge of household and/or used gold jewellery and provide short-term personal and business gold loans  primarily to retail customers.

The other business verticals of the company include Vehicle and Equipment Finance Business, Payments business, SME business and fee based services including forex and money transfer. Further, MFL has also expanded into other business verticals such as microfinance business through its Subsidiary AML, housing finance business through its subsidiary MHFL and insurance broking through our Subsidiary MAIBRO.

In the Fiscal Years 2014, 2015, 2016, 2017 and 2018 and the three month period ended June 30, 2018, interest income from the Gold Loan business constituted 97.00%, 97.00%, 91.00%, 86.00%, 79.90% and 76.29%, respectively, of the total revenue.

Below are the few important details about upcoming Manappuram Finance Oct 2018 NCD issue (FY 2018-19) ;

• NCD Issue opening Date : 24th Oct, 2018
• Issue Closes on : 22nd Nov, 2018.
• Interest Rate or Coupon Rate on NCDs : The ROI ranges from 9.60% to 10.40% depending on the category of investor and tenure of the NCDs.
• Issue Size : Base Issue size is Rs 200 cr (with an option to retain oversubscription amount of up to Rs 800 cr for Tranche-I. Total Issue Size is Rs 1,000 cr)
• Mode of Issue : Demat
• Face Value or Issue Price of one NCD is Rs 1,000.
• Available Tenor options : 400 days / 2, 3, 5 & 7 years
• 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 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/Stable” for an amount of up to Rs 1,000 Crore, by CARE Ratings Limited and “BWR AA+/Stable” for an amount of up to Rs 1,000 Crore, by Brickwork Ratings India Private Limited.
• Issue Allocation Ratio : 30% of the Issue is for retail investors & 50% 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.
• You may download the ‘draft Shelf Prospectus’ from this link..

Rate of Interest on latest NCD Issue by Manappuram Finance Ltd

(Click on the above image to open it in a new browser window)

Should you invest in Manappuram Finance NCD Issue (Oct 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). Also, the current cash/liquidity crunch may have a deeper impact on NBFCs businesses in the near future.

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. But, 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 (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 : 24-Oct-2018) (This article is based on limited available information, if required, the content will be edited.)