Indiabulls Commercial Credit Ltd, an NBFC (Non-banking finance company) and a subsidiary of Indiabulls Housing Finance, has launched an issue of Non-Convertible Debentures (NCDs). It opened on 11th September and will close on 28th September. The NCD issue is rated as AAA (Stable) by both Crisil and CARE.
The company is raising Rs 1,000 crore through this issue of NCDs with the option to retain another Rs 1,000 crore in case of oversubscription. Only domestic financial institutions like mutual funds and Resident Indians can subscribe to the NCDs.
The 75% of the money raised will be used to repay existing borrowings and the balance 25% for general corporate purposes. The face value of each NCD will be Rs 1,000 but the minimum application amount is Rs 10,000. The NCDs will be listed on the NSE and BSE.
The table below gives you the interest rate as per the tenure you apply for and the type of investor you are. Please see the notes at the end of the table.
|Tenure||2 years||3 years||3 years||5 years||5 years||10 years||10 years|
|Coupon for Cat. I and II||N/A||N/A||8.80%||8.57%||8.90%||8.75%||9.10%|
|Coupon for Cat. III and IV||N/A||N/A||8.90%||8.66%||9.00%||8.84%||9.20%|
|Effective Yield for Cat I and II||8.70%||8.80%||8.79%||8.90%||8.90%||9.10%||9.09%|
|Effective Yield for Cat III and IV||8.80%||8.90%||8.89%||9.00%||9.00%||9.20%||9.19%|
Cat. I = Public Financial Institutions, Cat. II = Companies, Cat. III = Resident Indians applying for less than Rs 10 lakh, Cat. IV = Resident Indians applying for more than 10 lakh
NCD interest is fully taxable in the hands of the investor. However, the company will not deduct TDS for the same.
How to apply
You can download application forms and submit at the branches of the lead managers of the issue. The lead managers are Axis Bank, Edelweiss Financial Services, AK Capital and Trust Investment Advisors Pvt. Ltd.
The application can either be ASBA (in which case your application amount is blocked and then deducted on allotment) or non-ASBA (in which case you submit a cheque or DD with the application).
Should you buy?
At 8.57% – 9.20%, the Indiabulls Commercial Credit NCDs are offering rates comparable to the Tata Capital NCDs which are also open for subscription. In May-June 2018, DHFL issued NCDs at 9.1%, Shriram Transport Finance issued NCDs at 9.5% and JM Financial Credit Solutions issued NCDs at up to 9.75%.
The Indiabulls Commercial Credit NCDs have been rated AAA (Stable) by Crisil and Care. The Indiabulls group has a number of businesses including home loans, real estate and even a mutual fund. All this builds a measure of confidence in the NCD issue.
On the other hand, the IL&FS fiasco has reminded investors that credit ratings can go from top notch to junk in a matter of days. Ratings are not always an accurate representation of a company’s financial strength. Interest rates are also rising and you may be able to get higher rates if you wait.
Investors can also approach NCDs through Fixed Maturity Plans (FMPs) of mutual funds which also invest in NCDs for a 3-4 year period. FMPs with a tenure of more than three years are taxed at 20% (with indexation). This could be less than the tax you pay on interest from NCDs which is at your slab rate. This may well be the safest and most efficient route for you to take.