Get double digit returns by investing in Sakthi Finance NCD; watch out for these risks

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Published: April 10, 2019 4:11:12 PM

Coimbatore-based NBFC firm Sakthi Finance looks to raise up to Rs 150 crore through NCDs.  The issue will be available for subscription till 9th May 2019.

The public issue by the firm consists of secured NCDs as well as unsecured NCDs aggregating up to Rs 150 crore.

Coimbatore-based NBFC firm Sakthi Finance looks to raise up to Rs 150 crore through NCDs.  The issue will be available for subscription till 9th May 2019. The public issue by the firm consists of secured NCDs as well as unsecured NCDs aggregating up to Rs 150 crore. The issue price is kept at Rs 1,000 per NCD, and the bid lot is kept at 10. Therefore, the issue entails a minimum investment of Rs 10,000. The proceeds of the issue will be used for the purpose of onward lending, financing, and for repayment/ prepayment of interest and principal of existing borrowings of the company, as well as general corporate purposes. Investors will have to note that the issue is rated as [ICRA] BBB (Outlook: Stable) by ICRA Ltd.

According to Basavaraj Tonagatti, even though the effective yield on this NCD is ranging between 9.50% to 13.24%, investors should exercise caution. “The current credit rating of at [ICRA] BBB (Stable)”) is an issue of concern. Investors should take note of the credit rating and financials of the company,” SEBI Registered Investment Advisor Basavaraj Tonagatti told Financial Express Online.

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Tonagatti notes that a slew of NCD issues have flooded the market in recent times. While these may offer higher returns, it is imperative to take into account the increased risks, as reflected by the credit rating. Further, even though the Sakthi Finance NCDs are secured, low rated NCDs may pose a challenge in recovering the invested corpus in case of the firm undergoes financial difficulties, he said. “It is better to stay away from such low rated NCDs, as there are better options available now,” Tonagatti noted.

After RBI cut interest rates for the second consecutive time last week, fixed deposits returns are expected to remain low, leading investors to look elsewhere. With the probability of deposit rates moving up in the near term remaining low, non-convertible debenture (NCD) issues have increased in the market, say analysts. Yesterday, Srei Infrastructure Finance Limited (SREI) proposed had come out with an NCD issue. Earlier, Kerala-based NBFC firm Kosamattam Finance had come out with a NCD (non-convertible debenture) issue to raise up to Rs 150 crore. This issue will be available for subscription till 29th April 2019.

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