Kerala-based NBFC firm Kosamattam Finance has come out with a NCD (non-convertible debentures issue) to raise up to Rs 150 crore. We take a closer look at the risk-return prospects of the issue.
Kerala-based NBFC firm Kosamattam Finance has come out with a NCD (non-convertible debenture) issue to raise up to Rs 150 crore. The issue will be available for subscription till 29th April 2019. Notably, the public issue by the firm consists of secured NCDs as well as unsecured NCDs aggregating up to Rs 150 crore with an option to retain over-subscription of up to Rs 150 crore aggregating to a total of up to Rs 300 crore. The base issue size is kept as Rs 150 crore. “The Secured NCDs shall be allotted for a value up to Rs 27,500 lakhs and Unsecured NCDs shall be allotted for a value up to Rs 2,500 lakhs,” the firm said in its prospectus. The offer price is kept at Rs 1,000 per NCD, and the bid lot is kept at 10. Therefore, investors will have to put in a minimum of Rs 10,000.
Commenting on the prospects of the issue, Basavaraj Tonagatti, SEBI Registered Investment Adviser said that while the issue may provide better returns than bank fixed deposits, there are risks associated with the issue. “The biggest concern with Kosamattam Finance NCD issue is the credit rating. It is currently rated as ‘IND BBB,’ by India Ratings. This rating is considered to have moderate degree of safety regarding timely servicing of financial obligations,” Tonagatti told Financial Express Online. Explaining further, he said that such instruments carry moderate credit risk as the firm is offering both secured and unsecured NCDs. Considering the credit rating itself, we can easily assume that this not for all investors, he said, adding that less risk-averse investors may experiment with the issue.
The investors should also bear in mind that the ratings may change over time based on the company’s financial performance. Tonagatti suggests that even if investors are ready to take a higher risk they should experiment with secured NCDs rather than the unsecured NCDs.
While the interest rates offered by these NCDs range between 9-11%, investors must keep taxation in mind, says the advisor. “Interest income attracts a tax as per your tax slab. Also, if you sell it in the secondary market, then such capital gain attracts capital gain tax too (STCG as per tax slab and LTCG at 10% with indexation benefit),” he explained.