Shriram City Union,City Union Bank
Introduction:
Shriram City Union Finance, a deposit-taking NBFC belonging to the Chennai-based Shriram Group, has entering the debt capital market on 25th November 2013, with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 100 crore with an option to retain another Rs. 100 crore, taking the total fund raising to Rs. 200 crore.
Issue Details:
Closes on 24th December 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 CARE indicating high degree of safety for timely servicing of financial obligations
Listing: On NSE and BSE with one NCD comprising a trading lot. NCD would be issued in both demat and physical form, while traded only in the demat form.
What’s on offer: The NCD issue has 4 investment options as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI | Series VII |
| Frequency of interest payment | Annual | Annual | Annual | NA | NA | NA | Annual |
| Tenure | 3 years | 4 years | 5 years | 3 years | 4 years | 5 years | 3 + 1 +1 years |
| Coupon Rate (% pa) |
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| 11.00% | 11.25% | 11.50% | NA | NA | NA | 11.25% |
| 10.75% | 10.75% | 10.75% | NA | NA | NA | 10.75% |
| Effective Yield (% pa) |
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| 11.00% | 11.25% | 11.50% | 11.00% | 11.25% | 11.50% | 11.25% |
| 10.75% | 10.75% | 10.75% | 10.75% | 10.75% | 10.75% | 10.75% |
| Put / Call Option | None | None | None | None | None | None | None |
| Redemption Amount (per NCD) |
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| Face Value + Accrued Interest | Face Value + Accrued Interest | Face Value + Accrued Interest | Rs. 1,367.63 | Rs. 1,531.79 | Rs. 1,723.35 | Rs. 333.33 after year 3, year 4 and year 5 respectively |
| Rs. 1,358.41 | Rs. 1,504.44 | Rs. 1,667.17 |
Note: No restriction on the amount that the retail investors can apply for (Rs. 10 lakh in similar issues previously)
Allocation Ratio: 80% issue reserved for resident individuals / HUFs – split equally between investment application upto Rs. 5 lakh and for investment application above Rs. 5 lakh. 10% of the issue reserved for institutions, while balance 10% for non-institutional category.
Company Background:
Part of the Shriram Group, this company with over 50% institutional shareholding, specializing in SME finance, 2 wheeler and auto loans, gold and personal loans, has assets under management of Rs. 15,118 crore. During H1FY14, company clocked income of Rs. 1,573 crore and PAT of Rs. 245 crore, on equity of Rs. 59.3 crore and networth of Rs. 2,663 crore. Its capital adequacy is a comfortable 23.3% while its net NPAs were 0.65% of loan assets, as of 30th September 2013. Its total borrowing is Rs. 11,700 crore, over half of which is through bank borrowings, approx. one-third from retail and about 10% from public issues of NCDs. Thus, the company has a healthy financial position along with a strong balance sheet.
Rate of Return:
Series III and VI offering 11.50% yields on 5 year NCDs are the highest rates in the issue. While this may seem attractive vis-à-vis bank FD, it is not advisable in relation to upcoming tax free bonds of PSUs. Rs. 48,000 crore limit has been sanctioned to be raised in FY14 to several PSUs, and not even half of it has been mopped up yet. The tax free bonds are also of longer duration of upto 20 years, besides being tax efficient.
Last issue of NHPC carried 8.92% interest rate for 20 years, which, if adjusted for highest tax rate of 30.90%, resulted in interest of 12.91% p.a.
Recommendation:
While Shriram Group is a strong and reputed brand, one must wait for the upcoming issues of tax-free bonds from PSUs, which offer more coupon coupled with longer duration.