Manappuram Finance Limited (MFL) is launching its public issue of non-convertible debentures (NCDs) from today, 28th of January. The company wants to raise Rs. 737 crore from this issue, including the green-shoe option of Rs. 587 crore, and is offering interest rate in the range of 9.35% for 36 months and 10.15% for 60 months.
The issue is scheduled to close on February 27, unless the company decides to close the issue prematurely. The issue is rated ‘AA+’ by Brickwork Ratings and ‘AA’ by CARE.
Before we check how the issue looks from an investment point of view, let us take a look at some of its key features:
Size & Objective of the Issue – Base size of the issue is Rs. 150 crore, with an option to retain oversubscription of an additional Rs. 587 crore, making the total issue size to be Rs. 737 crore. The company plans to use the issue proceeds for its lending and financing activities, to repay interest and principal of its existing borrowings and other general corporate purposes.
Interest Rate on Offer, Effective Yield & Tenor of the Issue – The issue will carry coupon rate of 10.15% p.a. for a period of 60 months and 9.75% p.a. for 36 months. These rates would be applicable for annual interest payment options only. Monthly interest payment option is also available with these tenors, and coupon rates for these periods are 9.75% p.a. and 9.35% p.a.
respectively. There is one more option of 2,617 days investment period, which doubles your money in this period.
ASBA Mandatory – Like equity IPOs, SEBI has made ASBA mandatory to apply for debt issues as well, effective October 1, 2018. So, you are no longer required to issue cheques to apply for these NCD issues. In case of physical applications, you need to sign on the application form as per your bank records.
Credit Rating & Nature of NCDs – CARE and Brickwork Ratings have been appointed as the credit rating agencies for this issue. While CARE has rated the issue as ‘AA’ with a ‘Stable’ outlook, Brickwork Ratings has rated it as ‘AA+’ with a ‘Stable’ outlook. Moreover, these NCDs are ‘Secured’ in nature.
NRIs Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.
Categories of Investors – The company has decided to categorise investors in the following four categories:
Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 73.7 crore
Category II – Non-Institutional Investors (NIIs) – 10% of the issue i.e. Rs. 147.4 crore
Category III – High Net Worth Individuals (HNIs) including HUFs – 30% of the issue is reserved i.e. Rs. 221.1 crore
Category IV – Resident Indian Individuals including HUFs – 50% of the issue is reserved i.e. Rs. 368.5 crore
Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first-come first-served basis, as well as on a date priority basis, i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.
Minimum Investment – An investor needs to invest a minimum of Rs. 10,000 in this issue i.e. 10 NCDs worth Rs. 1,000 each.
Listing, Premature Withdrawal – These NCDs are proposed to get listed only on the Bombay Stock Exchange (BSE). The listing will take place within 6 working days after the issue gets closed. Though there is no option of a premature redemption, the investors can always sell these NCDs on the stock exchange.
Demat A/c. Mandatory – Demat account is mandatory to invest in these NCDs, as the company is not providing the option to apply for these NCDs in physical or certificate form.
No TDS in Demat Form – Interest income with such NCDs is taxable in the hands of the investors and you will have to pay tax on the interest income while filing your income tax return. Moreover, as demat account is mandatory to invest in this issue, no TDS would get deducted from your interest income on NCDs held in demat form.
But, in case you decide to close your demat accoun, you can get these NCDs rematerialised. So, if rematerialised and held in physical form after the allotment, and if the annual interest income is more than Rs. 5,000, TDS @ 10% will be deducted.
Should you invest in Manappuram Finance NCDs?
Financial results announced by both the gold-financiers, Manappuram Finance and Muthoot Finance, were healthy in the previous quarter. So, from the fundamentals point of view, Manappuram Finance is doing well and it seems there is no immediate threat to its business model as of now.
Moreover, with global crude prices falling more than 30% from its peak of 2018, Indian rupee has strengthened and bond yields have corrected very sharply. Following such a sharp correction in bond yields, debt issuers are also reducing their interest rates on NCDs. Interest rates offered by Manappuram in this issue are 0.25% lower than the interest rates offered in its previous issue of October 2018.
Liquidity concerns of NBFCs have also eased somewhat, but the crisis has resulted in a slowdown in disbursements of loans and business growth. It is yet to be seen whether these companies are able to avoid this crisis completely or not. So, till the time you are confident that the crisis is over, and these NBFCs will have better time in the days to come, I think you should either avoid such NCDs or invest in a diversified manner.