Shriram Finance
Shriram Transport Finance, India's largest commercial vehicle (CV) financing company, is entering the debt capital market with a public issue of secured non-convertible debentures (NCD) of face value Rs. 1,000 each on Monday, 27th June 2011 (Monday) to raise Rs. 500 crore with an option to retain another Rs 500 crore, taking the total fund raising to Rs. 1,000 crore.
The issue, being offered on a first-come-first-serve basis, closes on Saturday, 9th July 2011, with an option in the company's hand to close the issue earlier. The NCDs, to be listed on NSE 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 third time in 3 years, after tasting success of its previous such issuances worth Rs. 1,000 crore and Rs. 500 crore in 2009 and 2010 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 - 5 years and 3 years. Based on the type of investor and the tenure of instrument, different interest rates ranging from 11.00% to 11.60% p.a. are being offered:
| Type of Investor | Amount | Issue Size | Interest Rate (p.a.) | |
| For 5 years | For 3 years | |||
| Individual | Investment upto Rs. 5 lakh | 40% of issue size | 11.60% | 11.35% |
| Individual | Investment above Rs. 5 lakh | 40% of issue size | 11.35% | 11.10% |
| Others (QIBs, corporate) | - | 20% of issue size | 11.10% | 11.00% |
Thus, the highest rate of interest is being offered to individuals for investment upto Rs. 5 lakh at 11.60% per annum. The interest payable would be taxable (similar to bank FDs), although there is no tax deduction at source (TDS).
Shriram Transport Finance, a deposit-taking NBFC with a market share of 20 - 25% in the pre-owned and 7 - 8% in new truck financing segment, had assets under management (AUM) of Rs. 36,086 crore as of March 31, 2011. Being the only organised player in the pre-owned CV financing market, the company caters to over 7.5 lakh customers across the country. Its balance sheet is very healthy with capital adequacy ratio (CAR) of 24.80% as of 31st March 2011, against RBI's revised requirement of 15% CAR effective 31st March 2012. The company's net NPAs, on a decline since the last 2 years, have halved from 0.8% in FY09 to just 0.38% in FY11, being one of the lowest in the industry currently. 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 exchange, making it an attractive investment option for retail investors vis-Ã -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 of upto Rs. 5 lakh offers net return of 8.02% 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 are recommended to go for the issue, which scores over other 'fixed income' investment options.