Shriram City Union,City Union Bank
Shriram City Union Finance, a deposit taking NBFC and the largest small enterprise finance company in India, is entering the debt capital market with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each on 11th 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 'AA' by CARE, indicating high degree of safety for timely servicing of financial obligations, closes on 27th 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 10,000 and in multiples of Rs. 1,000 thereafter.
Under the current issue, there are two different tenures being offered to investors - 5 years and 3 years. Based on the type of investor and the tenure of instrument, different interest rates ranging from 11.50% to 12.10% p.a. are being offered:
| Type of Investor | Amount | Interest Rate (p.a.) | |
| For 5 years* | For 3 years | ||
| Individual / HUF | Investment upto Rs. 5 lakh | 12.10% | 11.85% |
| Individual / HUF | Investment above Rs. 5 lakh | 11.85% | 11.60% |
| Others (QIBs, corporate) | - | 11.60% | 11.50% |
* 5 year NCDs carry a put / call option exercisable at the end of 4 years from the allotment date
Thus, the highest rate of interest is being offered to individuals / HUFs for investment upto Rs. 5 lakh at 12.10% per annum. The interest payable would be taxable (similar to bank FDs), although there is no tax deduction at source (TDS).
Shriram City Union Finance, a deposit-taking NBFC specializes in retail finance, offering auto loans, small business loans, consumer finance, personal loans and gold loans. With over 1,000 business outlets serving 1.15 crore customers, the company is the largest small enterprise finance company in India commanding 95% market share in the small loan segment (loans of Rs. 1-10 lakh) and a 53% market share in total Indian micro, small and medium enterprises segment. For FY11, company clocked total income of Rs. 1,318 crore and PAT of Rs. 241 crore, resulting in EPS of Rs. 49 on equity of Rs. 49.5 crore and net worth of Rs. 1,213 crore. With AUMs of Rs. 7,998 crore as of 31st March 2011, the company's capital adequacy stood at 20.53% (versus RBI stipulated 12%) while its net NPAs were 0.43% of loan assets, as on that date. Thus, the company has a healthy financial position along with a strong balance sheet. Funds raised via the NCD issue will be used in regular financing business and repaying some existing debt. The company also plans to enter the home finance segment soon through a dedicated wholly owned subsidiary.
NCDs offering 12.10% interest rate for 5 years are an attractive investment option for retail investors vis-Ã -vis other fixed income products such as bank FD or debt schemes of mutual funds as even on a post-tax basis, these 5 year investment of upto Rs. 5 lakh offers net return of 8.36% to those falling in the highest tax bracket. Plus, the pedigree of Rs. 30,000 crore Shriram Group provides the necessary comfort for timely repayment of principal and interest.
Thus, the current NCD issue from the Shriram stable (after Shriram Transport Finance) 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 go for the issue.