Religare NCD debuts at discount, joins peers in struggle

Written by Samie Modak | Mumbai | Updated: Sep 28 2011, 06:14am hrs
With interest rates expected to remain high, non-convertible debentures (NCD) of Religare Finvest listed at a discount on Tuesday, joining a host of other NCDs whose prices are trading below face value in the secondary market.

Most NBFCs had priced the issues attractively, offering retail investors reasonably high coupon ratesabout 200 to 300 basis points more than the bank fixed deposit rates, which typically offer between 9-9.5%for a tenure of one year. However, the perception in the bond markets that interest rates could remain high given that inflation has been sticky, has resulted in some price depreciation.

Brokers in the corporate bond market also point out that there have been several NCD issues of late and that the market has been somewhat illiquid. Between August 4 and September 9, five NCD issuesall from NBFC firmshit the market to mop up over R4,000 crore.

Religare Finvest picked up about R750 crore in 3-year and 5-year tenures and the issue closed at a discount at R991 on Tuesday against the face value of R1,000. Interest rates continue to rise and, as such, all these papers are trading at a discount. However, once interest rates start to come down, they could start trading at a premium, said an investment banker.

He added that the performance of those NCDs which had lacked institutional participation has been poor.

The fate of most of the recent NCDs is no different than that of Religare Finvest. Muthoot Finance NCD, with a coupon of 12.25% on 5-year tenure, is currently trading at R935 while Mannappuram Finance, which offered 12.2% coupon rate on two-year tenure, is currently at R977. Only Shriram Transport Finance, which offered a comparatively lower coupon rate of 11.6% on five-year debentures is trading above its face value.

Its possible, suggest bankers, that some larger investors may have dumped the NCDs. Genuine retail investors have not participated in some of the recent issues and the major participants were those who wanted to trade in the paper and exit quickly, said a merchant banker.

Volumes in corporate bonds continue to be low. The daily average turnover in some of the recent NCDs is less than R50 lakh. Volumes are typically high in the first week of listing, but post that, the average turnover dips to less than R20 lakh.