SREI Infrastructure Finance NCD Jan 2017 | Public Issue details & review

The interest rates on Bank fixed deposits have been on the downward slope and the interest rates on popular small savings schemes like Senior Citizen Savings Scheme, Post office MIS etc., are not very attractive. Also, Tax Free Bond Issues are not available in this FY. 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.

Almost all the recent and latest NCD Public Issues have been fully subscribed from all category of investors on day one of the subscription period itself.

Latest NCD issue by Muthoot Finance (Jan 2017) has seen over-subscription within 2 days itself. Many companies like Mahindra & Mahindra Fin Services, Edelweiss, Dewan Housing Finance, India Bulls Housing Finance etc., have raised funds by issuing NCDs in FY 2016-17.

Adding to the list is SREI Infrastructure Finance Ltd. SREI Infra is now proposing to issue secured & redeemable NCDs. The proposed public issue will be open for subscription from 30th January, 2017 to 23rd Feb, 2017.

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.

SREI Infra’s latest NCD issue offers non-convertible debentures in the form of Secured NCDs. Below is a short video on ‘basics of NCDs’.

SREI Infrastructure Finance NCD Jan 2017  Issue Details & Features

SREI Infra is an infrastructure financing company, with a history of over 25 (twenty five) years in the infrastructure sector. The business model SREI Infra encompasses ; providing financial products and services for the customers engaged in infrastructure development and construction, with particular focus on power, road, telecom, port, oil and gas & special economic zone sectors in India with a medium to long term perspective.

Below are the few important details about SREI Infra’s latest Jan 2017 NCD Issue;

• NCD Issue opening Date : 30th January, 2017
• Issue Closes on : 23rd Feb, 2017.
• Interest Rate or Coupon Rate on NCDs : The ROI ranges from 8.5% to 9.5% 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 over-subscription amount up to Rs 706 Crores )
• Mode of Issue : Physical & Demat forms, subject to certain conditions.
• Face Value or Issue Price of one NCD is Rs 1,000.
• Available Tenor options : 400 days, 3 years & 5 Years.
• Frequency of Interest payment : Monthly, Annual & Cumulative (on maturity date of NCDs).
• 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 : BWR AA+  by Brickwork Ratings.
• Issue Allocation Ratio : 70% of the issue is for retail & HNI individual investors  (HNIs – individuals applying for an amount of > Rs 10 lakh).
• There are no PUT & Call options for these Secured NCDs. (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.)
• Additional  rate of interest of 0.25% is offered to the existing Bond/NCD holders and / or equity shareholders of the company on the deemed date of allotment (applicable for Individual Category investors and senior citizens only).
• Allotment of NCDs is on ‘first come, first served’ basis.
• NRI’s are not eligible to subscribe to this NCD issue.

Rate of Interest on latest SREI Infra Finance NCD : Jan 2017 Public Issue

Should you invest in SREI Infra Jan 2017 NCDs?

We all are aware that interest rates on fixed income securities are moving downwards. Also, if you observe the interest rates offered in the last NCD issue by SREI EFL (subsidiary of SREI Infra), they were slightly higher. Considering this downtrend, if you are looking for regular interest income (I think Cumulative option is not available in this issue) and are in 10% or 20% income tax slab rate, you may consider investing in these Secured NCDs. If you require regular income, can subscribe to monthly or annual interest payment mode. If you do not require regular income, you may subscribe to cumulative option.

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.

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.

Have you invested in any of the recent Public Issues of NCDs? Do you prefer NCDs to Bank FDs? Kindly share your views and comments.

(Featured Image courtesy of Vichaya Kiatying-Angsulee at FreeDigitalPhotos.net) (Post published on 25-January-2017) (Video Courtesy : srei.com)