NBFCs enter retail market with NCDs, offer high rates

Mumbai: Non-convertible debenture (NCD) public issues of Shriram City Union Finance, Magma Fincorp and L&T Finance are set to hit the capital markets starting April 5, 2019, with attractive coupon rates in the range of 9.5 per cent to 10.75 per cent.

Shriram City Union, a deposit taking non-banking finance company (NBFC) announced an NCD issue opening on April 5 with coupon rates in the range of 9.55 per cent to 9.75 per cent for tenures varying from 2 to 5 years.

The Shriram City NCD issue size is Rs 750 crore, with a base issue size of Rs 100 crore and an option to retain over subscription up to Rs 650 crore.

NCDs proposed to be issued by Shriram City Union Finance have been rated AA by rating agencies Crisil and CARE.

Magma Fincorp, another NBFC, announced an NCD issue opening on April 8 with coupon rates in the range of 10.25 per cent to 10.75 per cent for tenures varying from 3 year to 10 years.

Magma Fincorp NCD public issue size is Rs 500 crore,with base issue size of Rs 200 crore and an option to retain oversubscription of up to Rs 300 crore.

NCDs proposed to be issued by Magma Fincorp have been rated AA by rating agencies Brickwork Ratings and Acuite Ratings & Research.

L&T Finance's tranche two of NCD issue opens on April 8 with annual coupon rate in the range of 8.70 per cent to 9.05 per cent for tenures varying from 3 years to 8 years.

L&T Finance NCD public issue size is Rs 1000 crore, with a base issue size of Rs 500 crore and an option to retain over subscription of up to Rs 500 crore.

However, there are risks involved while investing in these high yield NCDs, according to analyst, in the backdrop of IL&FS crisis late last year.

Jimmy Patel, CEO, Quantum Mutual Fund, said, 'Post IL&FS crisis now the risk of investing in these high yield instruments is shifting to the retail investors. The purpose of raising money may be camouflaged and it's very difficult to know their financials accurately."

However, another market expert said since these NCDs are being issued by listed entities, their financials can be tracked through the quarterly results.

Anita Gandhi, Whole Time Director, Arihant Capital Markets, said, "Overall the liquidity position in the market is improving. In the case of IL&FS, since it was not listed, company results & balance sheets were not tracked by the investment community in general. Therefore, everything came as a shocker when IL&FS defaulted on interest payments. However, above- mentioned companies are in listed space. Therefore, along with it's ratings, investors can also track quarterly results of these companies to ensure they continue to remain in investment grade."

Post the IL&FS crisis in the last quarter of calendar year 2018, NBFCs are trying to diversify their capital raising routes, which may lead to higher number of public issues of NCDs.

"After IL&FS crisis, the strategy is to diversify funding, rely less on banks and we would rather like to go into the retail side of borrowing now," said a top official from Shriam City Union Finance. In fact the firm has launched first NCD public issues in the last five years and plan to launch two more tranche in July and Dec this year, the official said.

Allotments in all three NCD public issues will be made on first come first served basis.