Religare Ent
Introduction:
Religare Finvest, systemically important non-deposit taking NBFC and wholly-owned subsidiary of billion dollar Religare Enterprises, is entering the debt capital market for the second time after September last year, with a public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each to raise Rs. 250 crore with an option to retain another Rs 250 crore, taking the total fund raising to Rs. 500 crore.
Issue Details:
The first-cum-first serve issue opens on 14th September and closes on 27th September 2012, with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs 10,000, and in multiples of Rs, 1,000 thereof.
Rating: ‘AA-’ by ICRA and CARE indicating high degree of safety for timely servicing of financial obligations
Listing: To be listed on NSE and BSE with one NCD comprising a trading lot. NCD would be issued and traded only in the demat form.
What’s on offer: The NCD issue has 5 investment options as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V |
| Frequency of interest payment | Annual | Cumulative | Annual | Cumulative | Annual |
| Tenure | 3 years | 3 years | 5 years | 5 years | 6 years* |
| Coupon Rate (% pa) |
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| 12.25% | NA | 12.50% | NA | NA |
| 12.25% | NA | 12.25% | NA | NA |
| Effective Yield (% pa) |
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| 12.25% | 12.25% | 12.50% | 12.50% | 12.6184% |
| 12.25% | 12.25% | 12.25% | 12.25% | 12.2462% |
| Put / Call Option | None | None | None | None | None |
| Redemption Amount (per NCD) |
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| Face Value + Accrued Interest | Rs. 1,414.36 | Face Value + Accrued Interest | Rs. 1,802.03 | Rs. 2,000 |
| Rs. 1,414.36 | Rs. 1,782.10 |
*5 years and 10 months for individual investors
Allocation Ratio: 70% issue reserved for resident individuals / HUFs – split 40% for investment application upto Rs. 5 lakh and 30% for investment application above Rs. 5 lakh. 20% of the issue reserved for institutions, while balance 10% for non-institutional category.
Company Background:
Religare Finvest provides SME financing through loan against property, commercial assets funding, automobile leasing, loan against marketable securities and working capital loans. Its aggregate loan book as at 31st March 2012 stood at Rs. 12,574 crore, of which 47% is loan against property. Company had a networth of Rs. 2,081 crore as of 31st March 2012 with CAR of 19.65%, post fund-raising from Avigo PE and Jacob Ballis Fund in November vis compulsory convertible preference shares. Its gross and net NPAs are 0.85% and 0.51% respectively, as of 31st March 2012. For FY12, company reported total income of Rs. 1,859 crore and earned net profit of Rs. 138 crore. Thus, it enjoys sound financial position along with a healthy balance sheet.
Rate of Return:
12.62% effective yield on 6 year NCDs is very attractive, given the longer tenure of the instrument, ensuring that capital is earning higher rate. No bank is offering interest rates in double digit on fixed deposits of 5 years and above. Moreover, once RBI states easing policy rates, these rates on fixed instruments will only head south.
Previous NCD Issue:
Last September, the company had raised Rs. 800 crore through secured NCDs at 12.00%-12.50% interest p.a. with 3-5 years tenure. These previously-issued secured NCDs are currently trading on NSE with yields of about 11.97% - 12.07% per annum for NCDs which fall due for redemption 4 years hence. Thus, 12.62% pa is an attractive yield for about 6 years time period.
Conclusion:
Tax-free HUDCO bonds are currently trading at yields of about 7.5% on BSE. At 12.62% pa, Religare Finvest’s NCDs lead to effective post-tax return of 8.72%, assuming highest tax bracket of 30.90%. Hence, ignoring the time frame, these NCDs definitely fare favourably against the listed tax-free bonds.
Recommendation:
The current NCD issue is attractive for those individual / HUF investors looking to park funds in fixed investment schemes, and have not yet done so in the recent issues, as the interest rate is attractive vis-à-vis bank FD, company FD and listed tax free bonds, backed by good pedigree of Religare Group. Its an ‘apply’ in Series III, IV and V, based on individual cash flow needs.