India Infoline to launch NCDs

Investors are turning towards fixed-income options due to the volatile equity markets and double-digit returns from fixed-income products. Non-convertible debentures are especially becoming popular due to their high liquidity on account of being listed on the stock exchanges and the higher coupon rates. The last issue of Shriram Transport Finance was oversubscribed on day 1 itself.

India Infoline Investment Services, an NBFC subsidiary of India Infoline (IIFL), is coming out with NCDs of a face value of 1,000 each, aggregating to Rs 375 crore, with an option to retain over-subscription of up to Rs 375 crore, which, if exercised, will make the issue size Rs 750 crore.

The product: The debentures will be offered on a first-come, first-serve basis. The issue opens on August 4 and closes on August 12, with the company having the option to close the issue earlier. There are three options in the NCDs:

Option I (annual interest payment): The redemption date or maturity period is 36 months from the deemed date of allotment and the coupon rate is 11.7% per annum. The interest payment is annual and the face value plus any interest that may have accrued is payable on redemption.

Option II: Each NCD will be redeemed at 1,446.18 40 months after the deemed date of allotment, giving a yield of 11.7% per annum.

Option III (annual interest payment): The redemption date or maturity period is 60 months from the deemed date of allotment. The coupon rate is 11.9% per annum for category III investors and 11.7% per annum for others. The interest payment is annual and the face value plus any interest that may have accrued is payable on redemption.

There is no put/call facility in any of the options. The NCDs have a face value of 1,000 and one can apply for a minimum of 5,000.

The NCDs have been rated 'AA- (stable)' by ICRA, and 'AA-' by CARE, indicating high degree of safety for timely servicing of financial obligations. The interest payable would be taxable, but no tax will be deducted at source (TDS). The NCDs would be listed on the National Stock Exchange (NSE).

Why apply: The coupon rate is attractive for retail investors especially in the 5-year category (option 3) at 11.9%. Even if you are in the highest tax bracket, the post-tax returns are a decent 8.3%.

Why you shouldn't: NCDs are illiquid, since the issuances are small. Some earlier NCD issues of Shriram Transport (Series NG) and L&T Finance (Series N5) are available in the secondary market, with a yield ranging between 11.9% and 13.10%, which is slightly higher than the yield from IIFL's NCDs.