INDIA INFOLINE INVST SERV - NCD ISSUE
India Infoline Investment Services, NBFC and a subsidiary of the listed broker India Infoline, is entering the debt capital market with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each on 4th August 2011 to raise Rs. 375 crore with an option to retain another Rs 375 crore, taking the total fund raising to Rs. 750 crore.
The issue, rated 'AA-/Stable' by CRISIL and CARE, indicating high degree of safety for timely servicing of financial obligations, is being offered on first-cum-first serve basis. The issue closes on 12th August 2011, with an option in company's hands to either close the issue earlier or extend the closing. The NCDs, to be listed on NSE and BSE with one NCD comprising a trading lot, would be available only in the demat form with minimum application amount being fixed at Rs 5,000.
The NCD issue has 3 investment options as under:
| Particulars | Tenure (months) | Interest Rate (pa) | Interest Payment |
| Option 1 | 36 | 11.70% | Annually |
| Option 2 | 40 | 11.70% | Cumulative* |
| Option 3 | 60 | 11.90%^ / 11.70% | Annually |
*redemption amount at end of 40 months is Rs. 1,446.18 per NCD
^ 11.90% for retail Indian individuals and HUFs investing upto Rs 5 lakh in the NCD and 11.70% for others
The company is a systemically important non-deposit taking NBFC engaged in mortgage loans and capital market finance (loan against shares, margin funding etc.). As on March 31, 2011, mortgage loans accounted for 60% of its Rs. 3,300 crore loan book while capital market finance accounted for 35%, with balance 4% being gold loans and 1% health care finance. For FY11, company's income from operations stood at Rs. 468 crore with PAT at Rs. 92 crore. With a networth of Rs. 1,341 crore, as of 31st March 2011, company's debt as on date stood at Rs. 2,300 crore, indicating 1.7:1 debt-equity ratio. The funds raised via the NCD will be used for increasing the existing financing activities of the company.
Although the 11.90% interest rate may seem attractive for retail investment in fixed income securities, for investment upto Rs. 5 lakh, a higher risk premium is warranted due to the business operations and parentage of this company. Other previous NCDs issues such as those from SBI and Shriram Transport Finance provided greater comfort as they came from larger and more-respected corporate, albeit lower coupon rates. Thus, in addition to the risk premium, capital security is more important in the given macro environment, which seems a lower in this issue, vis-Ã -vis other fixed income investment options.
Thus, this NCD issue does not excite us too much. Look for other ideas and issues.