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Shriram Transport Finance NCD Should You Invest ??
The ‘Bond Street’ is flushed with corporate deposits with companies on a drive to raise capital from the market after a gap of seven years. Companies such as Tata Group, Pantaloon, Great Eastern, Edelweiss Cap, etc. have successfully mopped around Rs 10,000 crore from the market. But the question arises: are these issues more beneficial to retail investors than bank fixed deposits? Let us analyse the latest offer by Shriram Transport Finance which is planning to raise Rs 500 crore from the market.
Chennai-based Commercial Vehicle Financier Shriram Transport Finance, one of the largest assets financing Non-Banking Financial Corporation in India, conducts its nationwide operations with 479 branches. The total funds managed by the company and its net worth stand at Rs 23,281 crore and Rs 2,316.61 crore respectively as on March 31, 2009. Currently, the company has 14 lakh depositors serviced by its 15,000 agency members along with 1,300 resident representatives. It has reported a 35.67 per cent growth in its net profit at Rs 153.8 crore in the quarter ending March 31. It disburses 85 per cent of the loans to small truck owners who operate in semi-urban and rural areas, the reason why it has not been affected much by the financial meltdown as compared to medium and big truck segments.
Check Fixed Deposit rates
The company decides to raise capital through a secured, redeemable non-convertible debenture (NCD) issue. The objective is to collect Rs 500 crore from the market with an option to retain oversubscription of up to Rs 500 crore. The issue – mainly targeted at retail investors – opens on July 27 and will close on August 14. It offers interest rates, also known as coupon rates, ranging between 10.75-11.50 per cent across five options. The minimum application would be for Rs 10,000 and in multiples of Rs 1,000 thereafter. Two of its options offer an additional interest rate of 0.25 per cent for senior citizens. There won’t be any TDS (Tax Deducted at Source) on interest income and NCDs would be listed on National Stock Exchange (NSE), allowing investors to liquidate their investments before the maturity date.
Safety of Issue
The issue is rated ‘CARE AA+’ by CARE and ‘AA (Ind)’ by Fitch where the ratings indicate high stability, high creditworthiness and timely servicing of debt obligations. IDBI Trusteeship is appointed as Debenture Trustee to the issue and is secured by charge on the assets of the company. The company has created a Debenture Redemption Reserve for redemption of NCDs. So, the investments are secured under present conditions.
The NCD offers five options for different categories of investors as given in Table 1.
This is a rare-breed offer which caters to all kinds of investors. Option I is for the customers who require a regular income every six months. It carries an effective yield of 11.30 per cent and the redemption is staggered in ratio of 40 per cent, 40 per cent and 20 per cent at the end of 36, 48 and 60 months, respectively, thus, providing an easy flow of money after 3 years. On the same scale, option II provides an annual payment of interest with the same redemption clause as given under option I. These two options have mainly been designed for senior citizens or persons who require regular income as well as some fixed payments at the end of 3rd, 4th and 5th year. Senior citizens are offered an extra return of 0.25 per cent under both these options.
In case investors do not require any amount before five years– maximum term for the NCD – they can choose option III as it offers an interest rate of 11.03 per cent compounded quarterly, with the effective yield coming to 11.50 per cent. Option III will have a Put and Call option where both parties will have the right to call back their money, but only at the end of 48 months. Those who require some kind of annual income can go for option IV where the yield is 11 per cent with an option of Put and Call, at the end of 48 months. In Put option, buyers get the right to sell the underlying security at a specified future date at a specified price while in Call option, buyers get the right to buy the underlying security at a specified future date at a specified price.
Lastly, option V has been designed for those who want to invest for a short term, say, 3 years. Here, the interest rate has been capped at 10.75 per cent and there is no Put and Call option. The maturity amount (bullet payment) is paid at the end of 36 months only.
Table 2 provides the maturity amount investors would get under the different NCD options offered by the company at present. Option III would give the maximum returns since the compounding is done quarterly.
Shriram Transport Finance NCD looks a good offer for retail investors given its good credit rating and high creditworthiness as compared to low deposit rates offered by commercial banks – in the range of 6-8 per cent across different tenures. Thus, customers can enjoy a positive spread of 3 per cent over conventional fixed deposits. Since the issue is listed on NSE, investors can also buy and sell it in the secondary markets, thus there will not be any liquidity problems. Investors can choose different options as per their requirements and risk appetite. However, it is not advisable to put all money in bonds/debt products; instead investors should judiciously allocate their assets to different investment products in order to diversify their portfolio.
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20 Responses to “Shriram Transport Finance NCD Should You Invest ??”
Vijaykumar Naik said on August 8th, 2009 at 2:22 pm
Dear Sir, I am very much thankful for the analysis & detailled information about this shriram NCD . such kind of info is hard to get on other commercial sites & it was very much useful for small investor like me . Thanks once again team .
Wish you all the success for future .
loved the formatting and the new layout of the website
and as usual the analysis are in depth and professional
shankar said on August 26th, 2009 at 5:50 pm
Amarjeet said on September 2nd, 2009 at 11:43 pm
Excellent site, keep up the good work
Abhijeet said on September 4th, 2009 at 8:19 pm
This site rocks!
balbir singh ranawat said on September 8th, 2009 at 1:01 pm
good inputs avl. keep up the good work
Divya Nahata said on September 8th, 2009 at 3:16 pm
How can I invest in the debentures now?
As and when the NCD comes in the market, you can invest. If you want to invest in ongoing NCD, you can buy it from the secondary market. But you may not get a good deal as the market must have factored in the price in line with the current corporate bond yield..So, wait for any upcoming NCD…
Bhavesh said on September 22nd, 2009 at 1:10 am
Great work indeed. But one error (I think) in table 2. Interest calculation, you have done is not correct except option 3. Rest of the scheme are int. payable at semi/yr basis. Hence, for say option 4 you will not receive amount you have mentioned. Instead 11% PA on 25,000 makes 38,750 (2,750 for 5 yr + 25K priciple)instead of 42K+. You have done cummulative int. rate. But once you have received the int. payment, you will not cummulate for 11% again. It depends on rate at that time. But again, great work. Keep us posted.
Bhavesh said on September 22nd, 2009 at 1:54 am
Great work indeed. But I think in table 2 what you have shon is misleading. Understand that you have shown int. reinvested at same rate. But if you just simply shows total payment received by investor, that will be more clear picture than this. It is a big difference in amount like for say option 4 you will not receive amount you have mentioned. Instead 11% PA on 25,000 makes 38,750 (2,750 for 5 yr + 25K priciple)instead of 42K+. This is just a suggestion. As mostly company use this techniques to boost thier return on paper. But your job is to educate people. Hence, I though you should reflect true picture. But again, great work. Keep us posted.
lalit said on April 12th, 2010 at 10:09 am
if i invest for 5 years,will i get tax savings as we normally get in bank FDS?
ramesh said on April 13th, 2010 at 8:42 am
can we get tax savings from this fd if we invst for 5 years
ramesh said on April 13th, 2010 at 8:43 am
please reply soon as i need to invest for 5 years
admin said on May 6th, 2010 at 11:13 am
Yes you’ll get the benefit.
Mansi said on May 15th, 2010 at 11:39 am
Please advise what are double bond as option IV in the share application form of Shriram Transport Finance Company Ltd
Dhiraj Dixit said on May 18th, 2010 at 11:09 pm
yes u ll get the benefits
JC JOSHI said on June 20th, 2011 at 5:32 pm
Sir I am interested in purchasing some of your NCDs and other instruments,please advise the best option for long and medium term investments
Krishna said on June 26th, 2011 at 7:20 pm
How can I apply Sriram Transport NCD through online I mean through which site, Having demat account with SBI & JRG -but they have not given any option like any other IPO to apply. Cannot apply with Physical Application since I am currently our of country for 2 – 3 months.
JASPAL SHARMA said on June 29th, 2011 at 4:31 pm
shura said on August 27th, 2012 at 9:38 am
When the first 40% principle amount will be redem ?