Introduction:
Shriram City Union Finance, a deposit-taking NBFC belonging to the Chennai-based Shriram Group, is entering the debt capital market for the second time, with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 250 crore with an option to retain another Rs 250 crore, taking the total fund raising to Rs. 500 crore.
Public Issue:
The issue opens on 12th September and closes on 24th September 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 and ‘AA-/Stable’ by CRISIL indicating high degree of safety for timely servicing of financial obligations
Listing: To be listed on NSE and BSE with one NCD comprising a trading lot. NCD would be issued and 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 |
|
Frequency Of Interest Payment |
Annual |
Annual |
On Redemption |
On Redemption |
|
Tenure |
3 Years |
5 Years |
3 Years |
5 Years |
|
Individual Investor |
11.50% |
11.75% |
N.A |
N.A |
|
Non-Individual Investor |
10.60% |
10.75% |
N.A |
N.A |
|
Effective yield {% P.A} |
||||
|
Individual Investor |
11.50% |
11.75% |
11.50% |
11.75% |
|
Non-Individual Investor |
10.60% |
10.75% |
10.60% |
10.75% |
|
Put/Call Option |
None |
None |
None |
None |
|
Redemption Amount {NCD} |
||||
|
Individual Investor |
Face Value + Accrued Interest |
Face Value + Accrued Interest |
Rs. 1,386.20 |
Rs. 1,743.30 |
|
Non-Individual Investor |
Rs. 1,352.90 |
Rs. 1,666.65 |
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. Thus, greater reservation for individual’s vis-à-vis issue of India Infoline Finance.
Company Background:
Shriram City Union Finance, specializing in retail finance such as auto loans, small business loans, consumer finance, personal loans and gold loans, has a network of over 575 branches and 91 other business outlets across 17 Indian states. For FY12, company clocked consolidated total income of Rs. 2,057 crore and PAT of Rs. 338 crore, on equity of Rs. 52.3 crore and networth of Rs. 1,731 crore. With AUMs of Rs. 13,431 crore as of 31st March 2012, the company’s capital adequacy stood at 17.4% (versus RBI stipulated 15%) while its net NPAs were 0.38% 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 uses in regular financing business and repaying some existing debt.
Rate of Return:
11.75% interest rate on 5 year NCDs seems attractive for retail investment in fixed income securities, given the longer tenure of the instrument, ensuring that capital is earning higher rate. No bank is offering interest rates in double digit on fixed deposits of 5 years and above. Moreover, once RBI states easing policy rates, these rates on fixed instruments will only head south.
Previous NCD Issue:
Last August, the company had raised Rs. 750 crore through secured NCDs at 11.50%-12.10% interest p.a. with 3-5 years tenure. These previously-issued secured NCDs are on NSE trading with yields of about 11.1% – 11.4% per annum for 3 year NCDs and 11.5% – 11.6% for 5 year NCDs. Thus, 11.75% pa is an attractive rate of return for retail individual investors in the current offering for 5 years.
Comparison with India Infoline NCD:
Shriram is offering secured NCDs vis-à-vis India Infoline Finance which is offering 13.52% effective yield for 6 years with monthly interest payment on unsecured NCDs. Thus, the security factor is compensating the coupon rate / yield.
Conclusion:
Tax-free HUDCO bonds are on BSE trading at yields of about 7.5%. At 11.75% pa, Shriram City’s NCDs lead to effective post-tax return of 8.12%, assuming highest tax bracket of 30.90%. Hence, ignoring the time frame, these NCDs fare favourably against the listed tax-free bonds.
Recommendation:
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. It fares better than bank FD, company fixed deposits and listed tax free bonds with respect to rate of return. Those looking for diversified investment options can go for the issue with 5 years tenure, either with annual interest payment option or at redemption, based on an individual’s cash flow needs.
Moreover, ahead of RBI’s policy review on 17th September, other NBFCs are also likely to announce public issue of secured NCDs such as Religare Finvest, Muthoot Finance and SREI Infrastructure Finance. So keep a watch on the upcoming issues as well.
Company Registered Office:
Shriram City Union Finance Ltd,
123, Angappa Naicken Street,
Chennai- 600 001, Tamil Nadu
Phone: + 91 44 4392 5300
Fax: +91 44 4392 5430
Lead Managers:
- A.K Capital Services Limited
- Edelweiss Capital Limited
- JM Financial Consultants Pvt. Ltd.
