The NCDs are secured in which the claims of the secured NCD holders are superior to the claims of any unsecured creditors as the former would constitute secured obligations of the company.
In times like these when the interest rate is on a downward trajectory, Shriram Transport Finance, a deposit-taking Non-Banking Financial Company (NBFC), has come out with a public issue of secured redeemable non-convertible debentures (NCDs), offering interest rate as high as 9.70 per cent to the depositors. The Shriram Transport Finance tranche 1 issue is opening on 17 July and will close on August 16, 2019 and is slated to raise Rs 10,000 crore. However, the issue may get closed earlier if decided by the company management. NCD is a debt investment similar to a bond and comes with a fixed tenure and a fixed interest rate. The interest rate offered by NCDs is comparatively higher than bank fixed deposits and most other fixed-income investments, including post office small savings schemes.
The NCDs proposed to be issued under this Issue have been rated CARE AA+( Stable) by CARE Ratings and CRISIL AA+/Stable by CRISIL and IND AA+; Outlook Stable’ by India Ratings and Research. However, it is important for the investor to understand that these ratings may be suspended, withdrawn or revised at any time by the assigning rating agency and therefore before investing the investment need to be evaluated independently of any other rating. These ratings should in no way be construed as a recommendation to invest in this or any other NCD or investment which come with ratings.
At least 75 per cent of the funds raised through this issue will be used for the purpose of onward lending, financing activities and for repayment or prepayment of interest and principal of existing borrowings of the Company.
The investors have been categorized into four categories, according to which the interest rate will vary. The four categories are – Institutional Investors such as pension funds, banks, non-institutional investors such as companies, HNI investing above Rs 10 lakh across all series of NCDs in the issue and retail individual investors investing up to and including Rs 10 lakh.
Tenor and Coupon rate of interest
- 42 months: 9.12% (Monthly)
- 60 months: 9.22% (Monthly)
- 84 months: 9.31% (Monthly)
- 30 months: 9.30% (Annual)
- 42 months: 9.50% (Annual)
- 60 months: 9.60% (Annual)
- 84 months: 9.70% (Annual)
- 42 months: 9.50%* (Cumulative)
- 60 months: 9.60%* (Cumulative)
- 84 months: 9.70%* (Cumulative)
* (Effective Yield)
Here are a few important features of the Shriram Transport Finance Tranche 1 Issue:
- The minimum investment is Rs 10,000 across all series collectively. There are 10 series of NCD is the issue with varying tenure and interest rate.
- There is no interest reset period in the Shriram Transport Finance Tranche 1 issue. It means there is no Call or Put option and the NCDs will be redeemed only on maturity.
- There are 3 monthly payout options, four annual payouts and 3 cumulative options in the issue. Depending on your regular income needs, choose the one that suits you.
- The tenure of the NCDs is 30 months, 42 months, 60 months and 84 months.
- For monthly payouts, NCDs tenure available is – 42 months, 60 months and 84 months.
- For annual payouts, NCDs tenure available are – 30 months, 42 months, 60 months and 84 months
- For cumulative payouts, NCDs tenure available is – 42 months, 60 months and 84 months.
- The minimum coupon rate of interest is 9.12 per cent for the 42 months tenure with monthly payouts.
- The maximum coupon rate of interest is 9.70 per cent for the 84 months tenure with annual payouts.
- Senior Citizens will be eligible for an additional incentive of 0.25 per cent per annum, which provides a maximum rate of interest of 9.95 per cent for the 84 months NCDs.
Importantly, the NCDs are secured in which the claims of the secured NCD holders are superior to the claims of any unsecured creditors as the former would constitute secured obligations of the company. One should invest in NCDs keeping the risk factors in mind and one’s own risk profile and only a small portion of one’s investible surplus or a portion of one’s portfolio may be deployed if need be. Remember, the interest earned is fully taxable as per one’s income tax slab.