Edelweiss NBFC’s debentures offer 10.40% coupon: We check what’s hot and what’s not

Edelweiss Group’s NBFC arm ECL Finance has announced a Rs 300 crore public issue of secured redeemable Non-Convertible Debentures (NCDs) offering upto 10.4%. Should you invest?

Kumar Shankar Roy May 15, 2019

NCDsEdelweiss Group has announced a Rs 300 crore public issue of secured redeemable Non-Convertible Debentures (NCDs). The issuer of NCDs will be ECL Finance, the NBFC arm of Edelweiss Group. The NCDs are offering up to 10.4% interest per annum. The NCDs are rated AA/Stable by CRISIL, AA; Positive by CARE, but ICRA has rated the retail NCD programme as ICRA AA (Negative). RupeeIQ reviews the offering, and tells you what’s hot and what’s not. Read to know more.

NCD details

ECL Finance’s NCD offering has a base issue size of Rs 150 crore, with an option to retain over-subscription up to Rs 150 crore aggregating to a total of Rs 300 crore. It will close on 7th June 2019 with an option of early closure.

As you can see below, the ECL Finance NCD offers interest rate per annum from 9.90% to 10.40% depending on nine tenures, which range from 24 months (2 years ) to 120 months (10 years).

ECL Finance NCD

CRISIL has rated the offering “AA (Double A)/Stable and CARE has rated it as AA; Positive. Do note that ICRA on April 5, 2019 has revised outlook from ‘stable’ to ‘negative’ while reaffirming ICRA AA rating.

ECL Finance says the funds raised through this NCD issue will be used for purpose of onward lending, financing, and for repayment/prepayment of interest and principal of existing borrowings and for general corporate purpose.

Axis Bank Limited and Edelweiss Financial Services are the lead managers for this NCD Issue.

The NCDs will be listed on BSE Limited to provide liquidity to the investors.

Management view

Deepak Mittal, MD & CEO of ECL Finance, said, “Edelweiss has built a competitive position across businesses including the Credit segment, with a diversified product mix across corporate and retail customers. Our focus will be on maintaining the quality of our loan book. With the public issue of NCDs we will further diversify our funding sources”

Company business details

ECL Finance is the NBFC arm of Edelweiss Group. It is a profitable company. It has a growing loan book (as at 31 Dec 2018) of Rs 22,805.92 crore.

ECL Finance is primarily engaged in the business of corporate lending, providing finance to industrial enterprises, SMEs and individuals, and investment in other securities. The company is currently engaged in carrying out Edelweiss group’s financing activities like structured collateralised corporate loans, real estate financing, loans against shares, SME loans, loans against property, ESOP financing and initial public offering (IPO) funding.

In FY18, the company reported a net profit of Rs 462 crore on a total income of Rs 3,060 crore. In FY17, its net profit was Rs 390 crore on a total income
of Rs 2,495 crore.

As on Dec-2018, structured collateralized credit loans constituted 18.97% of the loan book. Wholesale mortgages, including various structured financing solutions for finance to developers for real estate projects under construction, accounted for 37.78% of the total loan book. Credit facilities to ‘SMEs and Others’ (11.67%), Retail Mortgages – Loans against Property (12.57%), and Agri Credit (nearly 2%) are other components of the loan book.

What’s hot

1. Edelweiss Group support – There are significant operational, financial and managerial integration with ECL Finance.

2. Strong asset position & financial numbers – On a standalone basis, as on March 31, 2018, ECL Finance reported Capital Adequacy Ratio (CAR) of 17.09% (16.14% as on March 31, 2017). ECL Finance reported gross NPA of 1.82% (on 90+DPD) as on March 31, 2018 as compared to 1.85% (on 120+dpd) as on March 31, 2017.

3. Recent fund infusion – It has received Rs 1040 crores from CDPQ Private Equity Asia Pte. Ltd., as the first tranche of investment in the form of compulsorily convertible debentures and equity shares. This would help cut the overall leverage over the near term and provide cushion to absorb losses, if any, on the stressed book.

What’s not

1. Risk build-up or rise in group wholesale book – Real estate and structured debt transactions across sectors pose some additional risk. This could impact asset quality.

2. Linked to capital market fortunes – The Edelweiss group is exposed to the inherent volatility in capital markets. Its various businesses are directly or indirectly linked to the performance of these markets. If markets turn topsy turvy, then watch out.

RupeeIQ take – Investors attracted by 10% interest rate have a reason to invest. Given the group wholesale book situation and capital market linked fortunes, it is better to go for the shorter tenure NCDs i.e. 24 months annual and 24 months cumulative option. If you gain confidence in the company’s repayment track-record, you can always consider investment in NCD issues coming in the future from ECL Finance.

Disclaimer: The article is only for informational purposes. Investors are requested to consult their financial, tax and other advisors before taking any investment decision.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at kumarsroy@rupeeiq.com.

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