SREI Equipment Finance NCDs April 2018 Public Issue : Details & Review

The interest rates on Bank fixed deposits may have touched the lowest levels 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.

SREI Equipment Finance Ltd is proposing to offer latest NCD issue. SEFL is going to offer Secured and redeemable NCDs. The proposed public issue will be open for subscription from 25th April, 2018 to 16th May, 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’.

SREI Equipment Finance NCDs April 2018 Public Issue – Key Features

SREI EFL is a non-banking finance company with a principal focus on financing Infrastructure equipment. It provides financial products & services to companies operating in the construction, mining, ports, railways, healthcare, oil & gas etc., sectors.

Below are the few important details about upcoming SREI Equipment Finance April 2018 NCD Issue (in FY 2018-19) ;

  • NCD Issue opening Date : 25th April, 2018
  • Issue Closes on : 16th May, 2018.
  • Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.54% to 9.60% 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 over-subscription amount up to Rs 500 Crores. Total Issue size Rs 1,000 cr).
  • Mode of Issue : Demat & Physical form (subject to certain terms & conditions).
  • Face Value or Issue Price of one NCD is Rs 1,000.
  • Available Tenor options : 400 days to 10 years
  • Frequency of Interest payment : Annual / Monthly. Cumulative option is 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 ‘BWR AA+ (BWR Double A plus) (Outlook: Stable)’ by Brickworks Ratings India Private Limited and SMERA AA+/Stable’ (SMERA Double A plus/Stable) by SMERA Ratings Limited.
  • Issue Allocation Ratio : 60% of the Issue is for individual investors (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 served’ basis.
  • NRIs are not eligible to apply to this NCD issue.

Rate of Interest on SREI Equipment Finance April 2018 NCD

SREI Equipment Finance NCDs April 2018 Public Issue Latest NCD issue by SREI Finance SFL in FY 2018-19

Should you invest in SREI Equipment Finance’s latest NCD (April 2018) Issue?

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 Secured NCDs.

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? 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 :

(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post first published on : 21-April-2018) (This article is based on limited available information, if required, the content will be edited.)

  • Govind says:

    Is it safe to invest in NCDs? Is this issue still open for investment?

  • >
    Scroll to Top