L&T Finance is coming out with a NCD issue. The issue opens 18th August and closes September 04th. Should the retail investors invest or not?
What are Non-Convertible Debentures?
NCDs are instruments which enable the borrower to borrow money against some collateral. The collateral in this case would be the company’ assets. L&T Finance would also be creating a Debenture Redemption Reserve to take care of payments for the NCD. (To the extent of 50% of value of NCD)
Debenture holders stand a greater right to the assets than shareholders in case the company goes bust. The assets are sold and shareholders are the last to receive anything, once all debtors are paid.
How safe is this issue?
L&T Finance is 100% owned subsidiary of Larsen and Toubro. So, if you can buy L&T shares you can buy these NCDs. It has received high credit rating from the rating agencies.
How good are the returns?
They are offering returns from 9.5 to 10.25% as per the table below. A government 10 year bond is yielding 7.3% as of yesterday.
What if I need the money early?
These bonds will be listed on the NSE, and they will be available in your Demat account.So you can exit anytime you want. Tata capital NCDs which came out in Feb are traded on NSE and there is adequate liquidity. You will get the money in 3 days time from the time you sell.
Is there something more I can expect?
There is a reservation of 35% for the retail. The Retail quota is almost never oversubscribed so you get full allotment. The HNI and Insitituins oversubscribe. Ur They will want to buy it from you on listing.
If the issue on listing, trades at 9 pc, your bond will yield you Rs 1030 (0.6 pc gain per year for next 5 years).
The Tata Cap NCD issued at Rs 1000 is now trading at Rs 1122.So if the rates go down, the value of your bond increases, if it goes up, keep holding the NCD and enjoy 9.65 pc interest for next 5 years.
Should I wait for the last day for investing?
Allotment is on first cum first serve basis. The issue may close earlier also.
I would recommend invest in this issue under the retail section.
Option I II III IV Interest Payment Quarterly Semi-annual Cumulative Semi-annual Minimum Application (Rs.) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) 10,000/-(Retail) 1,01,000/-(NIIs & QIBs) Multiples (Rs.) 1,000/- 1,000/- 1,000/- 1,000/- Face Value (Rs.) 1,000/- 1,000/- 1,000/- 1,000/- Mode of Interest Payment Through various modes available* Through various modes available* Through various modes available* Through various modes available* Coupon Rate 9.51% p.a. 9.62% p.a. 9.95% p.a. compounded annually 10.24% p.a. Yield on Redemption 9.85% 9.85% 9.95% 10.50% Tenor 60 months 60 months 88 months 120 months Redemption Date / Maturity Period 60 months from the deemed date of allotment 60 months from the deemed date of allotment 88 months from the deemed date of allotment 120 months from the deemed date of allotment Redemption Amount Face value plus any interest that may have accrued payable on redemption. Face value plus any interest that may have accrued payable on redemption Rs.2,005/-per NCD Face value plus any interest that may have accrued payable on redemption
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