SREI Infra
By Geetanjali Kedia
Introduction:
Kolkata head-quartered SREI Infrastructure Finance has entered the debt capital market with a public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each, third time this fiscal (previously in April and August 2013) to raise Rs. 100 crore now.
Issue Details:
Opened on 30th December 2013 and will close on 31st January 2014, 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 thereafter.
Rating: Unchanged from its previous issue in April and August. ‘AA-’ by CARE and ‘AA’ by BRICKWORK indicating high degree of safety for timely servicing of financial obligations.
Listing: On BSE and NSE with one NCD comprising a trading lot. NCD would be issue on both demat and physical form to retail investors. To institutional and non-institutional investors, allotment is only in the demat form and trading on the exchanges is also compulsorily in demat form.
What’s on offer: The NCD issue has 7 investment options for individuals/HUF and 3 for institutional and other investors, as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI | Series VII |
| Tenure | 2 years | 2 years | 3 years | 3 years | 5 years | 5 years | 5 years |
| Investors who can apply | All | Retail and non-institution | All | Retail and non-institution | All | Retail and non-institution | Retail and non-institution |
| Type of Security | Demat or physical | Demat or physical | Demat or physical | Demat or physical | Demat or physical | Demat or physical | Only demat |
| Frequency of interest payment | Annual | Cumulative | Annual | Cumulative | Annual | Monthly | Annual |
| Coupon Rate (% pa) |
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| 11.25% | NA | 11.50% | NA | 11.75% | 11.16% | Refer Note 1 |
| 11.00% | NA | 11.25% | NA | 11.50% | 10.94% | Refer Note 2 |
| 11.00% | NA | 11.25% | NA | 11.50% | NA | NA |
| Effective Yield (% pa) |
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| 11.25% | 11.27% | 11.50% | 11.51% | 11.75% | 11.75% | 11.77% |
| 11.00% | 11.00% | 11.25% | 11.24% | 11.50% | 11.51% | 11.53% |
| 11.00% | NA | 11.25% | NA | 11.50% | NA | NA |
| Redemption Amount (per NCD) |
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| Rs. 1,000 | Rs. 1,238 | Rs. 1,000 | Rs. 1,387 | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 |
| Rs. 1,000 | Rs. 1,232 | Rs. 1,000 | Rs. 1,377 | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 |
| Rs. 1,000 | NA | Rs. 1,000 | NA | Rs. 1,000 | Rs. 1,000 | Rs. 1,000 |
Note 1: Year 1 - 12.50%, Year 2 - 12.00%, Year 3 - 11.50%, Year 4 - 11.25%, Year 5 - 11.25%
Note 2: Year 1 - 12.00%, Year 2 - 11.50%, Year 3 - 11.50%, Year 4 - 11.25%, Year 5 - 11.25%
Company Background:
SREI Infrastructure Finance provides financial products and services for infrastructure development and construction. For FY13, consolidated total income stood at Rs. 3,110 crore with PAT of Rs. 263 crore and AUMs of Rs. 33,330 crore, as of 31st March 2013. However, its asset quality deteriorated sharply, with gross NPAs surging to 2.77% from 1.58% of 31st March 2012, and net NPAs nearly doubling to 2.30%, from 1.18% a year ago. Thus, there is considerable stress on the company’s books. For H1FY14, company’s consolidated total income was Rs. 1,591 crore and PAT Rs. 88 crore with AUMs of Rs. 34,754 crore.
Rate of Return:
The highest yield is being offered for 5 years tenure, with yields ranging between 11.75%-11.77% pa for retail investors. 11.77% pa translates into post-tax returns of 8.13%, assuming 30.90 tax rate. This is lower than yields of 12.13% and 12% being offered by Manappuram and Muthoot Finanace for 5 years secured NCDs. Moreover, SREI Infra is not the best placed in the industry coupled with an average rating for the instruments on offer. Thus, even the innovative structure of declining coupon rates every year under Series VII does not look compelling.
Thus, preference remains for 20 years tax free bonds with interest of 9.01% for National Housing Bank (NHB) with AAA rating.
Recommendation:
The issue is not recommended as the coupon rate is not attractive vis-à-vis other NCD issues also, let alone the tax free PSU bonds.