IPO Offer – Non-Convertible Debenture (NCD) of India Infoline Finance (IIFL)

Introduction:

The Non-Convertible Debenture (NCD) issuance of India Infoline Finance (IIFL) has managed to collect over Rs 110 crore on Wednesday, the first day of subscribing to the issue, according to sources in merchant banking circles. A host of wealth managers have given a thumbs up to the unsecured NCD issuance bearing a face value of Rs 1000 aggregating up to Rs 500 crores including green-shoe option.

IPO Issue Details:

 The Issue Comes on 5th September’2012 and done on a first-come-first-serve basis, closes on 18th September’2012, with an option in company’s hand to either close tha issue earlier or extend the closing. Minimum Application amount is Rs. 5,000 and Multiplies of Rs. 1,000 thereof.

IPO Rating:

However the issue has got a rating of AA- from both CRISIL and ICRA. Hence for investors who are looking for utmost safety as the first criteria, they should give this issue a clear miss.

IPO Listing:

To be Listed on Both Nse & Bse with one NCD comprising trading lot. NCD would be issued both in Physical and demat form, but can be traded on the Exchanges in demat form.

IPO Offer:

The 5 Year above NCD issue has 3 Investment Options as under:

Essentials Interest Payments Interest Rate {P.A} Effective Yield {P.A}
Option 1 Monthly 12.75% 13.52%
Option 2 Annually 12.75 12.75%
Option 3 Cumulative* Not Applicable 12.75%*

*Redemption amount at the end of 6 Years is 2,054.50 per NCD.

Allocation Ratio: 50% Issue reserved for Residential Individuals/HUFs-split equally between investment application upto Rs. 5 Lakhs and investment above Rs. 5 Lakhs 40% of the issue reserved institutions, while 10% balance for HNI’s.

Company Background:

The Company in Mortgage loans and capital market finance {loan against shares, margin funding etc} with mortgage loans accounted for 45% of its Rs. 6,746 crore loan book as of March 31st 2012, while gold loans accounted for 41%, Capital market finance 12% and balance 1% in Health Care.

For FY 12, Its Consolidated income from operations was Rs. 908 Crores with PAT at Rs. 105 Crore. With a Networth of Rs. 1,145 Crore as of 31st March 2012, company has highly leveraged with Rs. 5,938 Crore debt, including bebt-Equity ratio of 4.1:1, up from 1.6:1 as of 31st march 2011, when debt was Rs. 2,083 Crore. The current fund-raising, to be used for company’s financing activities, will only aggregate the debt-Equity ratio further.

Positives:

The 12.75% Interest rate seems attractive for retail investors in fixed income securities, given the longer tenure for the instrument for 6 Years, ensuring that capital earning the premium rate. No bank is offering interest rates in double digit on fixed deposit of 5 Years and above.

Concerns:

  1. Unsecured nature of Instrument
  2. Business operations involving in Risky areas of capital market fiancé.
  3. Parentage

Past NCD Issue:

Last August, The Company called as India Infoline Investment Services, has raised Rs. 750 Crores through NCD at 11.70-11.90% with 3-5 Years Tenure. In comparison of year ago the Interest rates are quite attractive, as the current NCD has unsecured, where last year secured NCD issued. These previously NCDs {Secured} are currently trading on NSE with yields of about 11.70% to 12% per annum.

Conclusion:

A head of RBI’s policy review on 17th September, may NBFC s having received SEBI nod, are likely to announce public issue of secured NCDs in the coming fortnight  ~ Religare Finvest, Muthoot Finance, Shriram City Union for Rs. 500 crores each and SREI Infrastructure Finance for Rs. 150 Crores .

 NCDs of other companies which are currently listed such as Shriram Transport Finance, provide greater comfort as they came large and more respected corporate, in addition to being secured instrument. Secured 5-Year NCDs of Shriram Transport Finance, issued just a last month, are currently trading at yields 11.5% to 11.8% per annum on the NSE.

IPO Recommendation:

Option I (Monthly interest payment): The redemption date is 72 months from the deemed date of allotment and the coupon rate is 12.75% p.a. The interest payment frequency is monthly and the face value plus any interest that may have accrued is payable on redemption. The effective yield on this option is 13.52% per annum. This can be termed as the ‘Small-Cap” of debt market.

For HNIs and large investors falling in the maximum tax bracket, as also, looking at the current yields on tax free bonds. Available in the secondary market and unsecured nature in NCDs from India infoline, yields looks moderate. Considering all this, put a small amount in this and wait for other better instrument for little safer and large users.

IPO Lead Managers:

The lead managers to this offer are Axis Bank Limited, SBI Capital Markets Limited, Edelweiss Financial Services Limited, Trust Investment Advisors Private Limited and India Infoline Limited (only for marketing of the Issue), while the Co-lead managers to the Issue are RR Investors Capital Services (P) Limited and Karvy Investor Services Limited.