Shriram Finance
Shriram Transport Finance, India’s largest commercial vehicle (CV) financing company, is entering the debt capital market (yet again) with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each, on 26th July 2012, to raise Rs. 300 crore, with an option to retain another Rs. 300 crore, taking the total fund raising to Rs. 600 crore.
80% of the total issue has been reserved for individual (retail) investors, while balance 20% for institutions. The issue closes on 10th August 2012, with an option in the company’s hand to close the issue earlier or extend the period. 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 10,000 and in multiples of Rs. 1,000 thereafter.
The company is making a public debt offer for the fourth time in 4 years, after tasting success of its previous such issuances worth Rs. 1,000 crore, Rs. 500 crore and Rs. 1,000 crore in 2009, 2010 and 2011 respectively, which received good oversubscription from the public. The issue has been rated ‘AA/Stable’ by CRISIL and ‘AA+’ by CARE, indicating high degree of safety with regard to timely payment of interest and principal.
Under the current issue, there are two different tenures being offered to investors – 3 years and 5 years. Based on the type of investor, frequency of interest payment and tenure of instrument, different interest rates ranging from 10.25% to 11.40% p.a. are being offered:
| Particulars | Series I | Series II | Series III | Series IV |
| Frequency of interest payment | Annual | Annual | On Redemption | On Redemption |
| Tenure | 3 years | 5 years | 3 years | 5 years |
| Coupon Rate (% pa) |
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|
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| - Individual Investor | 11.15% | 11.40% | NA | NA |
| - Non-Individual Investor | 10.25% | 10.50% | NA | NA |
| Effective Yield (% pa) |
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|
|
|
| - Individual Investor | 11.15% | 11.40% | 11.15% | 11.40% |
| - Non-Individual Investor | 10.25% | 10.50% | 10.25% | 10.50% |
| Put / Call Option | None | None | None | None |
| Redemption Amount (per NCD) |
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|
|
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| - Individual Investor | Face Value + Accrued Interest | Face Value + Accrued Interest | Rs. 1,373.19 | Rs. 1,716.15 |
| - Non-Individual Investor | Rs. 1,340.10 | Rs. 1,647.90 |
Thus, the highest rate of interest is being offered to individual investors for 5 years tenure at 11.40% per annum. Annual interest payment and interest on redemption, both have the same effective yield, making it indifferent to an investor.
Shriram Transport Finance is a deposit-taking NBFC with assets under management (AUM) of Rs. 40,307 crore as of March 31, 2012. Being the only organised player in the pre-owned CV financing market, its balance sheet is very healthy with capital adequacy ratio (CAR) of 22.26% as of 31st March 2012, against RBI’s requirement of 15%. Total income for FY12 was placed at Rs. 5,894 crore, with net profit of Rs. 1,257 crore. The company’s net NPAs at Rs. 98 crore, are just 0.45% of net loan assets in FY12, being one of the lower in the industry. The funds raised via the NCD issue will be used for financing activities, repaying existing loans, business operations and working capital requirement. Thus, the company is fundamentally sound with a strong balance sheet position.
NCDs offer dual advantage of higher coupon rates and liquidity, as they are listed on the stock exchanges, making it an attractive investment option for retail investors, vis-à-vis other fixed income products, such as bank FD or debt schemes of mutual funds. Even on a post-tax basis, the 5 year investment option offers net return of 7.88% to those falling in the highest tax bracket.
Although listed, NCDs are very thinly traded on the stock exchange and hence a comparison of yields with peers or previous issues would be inappropriate.
Current NCD issue from the Shriram group is attractive for retail investors as it offers high ‘fixed returns’ for a long-term duration of 5 years. Those looking for diversified investment options can apply in the issue, which scores over other ‘fixed income’ investment options.