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Monday, November 19, 2018

10.25% JM Financial NCD Issue Nov 2018 - Should you invest

JM Financial NCD NOV 2018 Offering 10.25%  issue details and recommendation
It is raining NCDs in India, after DHFL, Indiabulls, Tata Housing, Shriram transport and Manappuram, JM Financial has joined the group. To add, this is the second tranche for JM Financial, the company in the first tranche raised Rs 750 crore in June 2018. The proposed secured NCD offered by JM Financial Credit Solutions has come when Real estate market has started crying foul on the tight liquidity situation of NCD. The NCDs hit the street tomorrow, November 20, 2018 with a face value of Rs 1,000 each.
The base size of the issue is Rs 250 crore with an option to retain over-subscription of up to Rs 1,000 crore, aggregating to Rs 1,250 crore. With a credit rating of AA by ICRA and IND Rating

About JM Financial Credit Solutions
JM Financial Credit Solutions Limited provides wholesale credit to developers at various stages in the life cycle of a real estate project. It provides commercial real estate funding solutions, such as loan against ready property, construction funding, lending towards land acquisition, and structured deals against residential projects that are located in Mumbai, Pune, Bengaluru, Chennai, NCR, Hyderabad, and Kolkata. The company also offers investment banking and securities services; and alternative asset management services, which include managing private equity funds and real estate funds, as well as mutual funds. JM Financial Credit Solutions Limited was formerly known as FICS Consultancy (Bloomberg newswire)


About the issue – The issue opens on 20th November and closes on 20th December. The proceeds of the NCD issue likely to go towards the liquidity starved real estate sector for various projects at various stages by Real estate Developers. The face value of the NCD is Rs. 1000 and the minimum subscription is for  10 bonds. Interest rates payable at monthly/ quarterly/ semi-annually/annually the coupn rate vary between 9.8-10%.

The objects of the NCD Public Issue.
1) For the purpose of onward lending, financing, and for repayment /prepayment of interest and principal of existing borrowings of the Company.
2) For General Corporate purpose.

Recommendation  - While the interest rate is on the higher side,  rating agencies haven’t given it a AAA rating. Individual investor who has a risk appetite, and who are at tax bracket of 20% and above can subscribe to it. This  NCD is secured by Assets.

What is NCD?
NCD is a fixed income instrument Apart from taking bank loans Corporates, NBFCs raise money through issuing debentures. It is a financial instrument issued by corporates to support their business needs. There are two type of debentures, convertible debentures and non-convertible debenture. Convertible debentures are unsecured bonds and can be converted into equities or stocks at a future date as specified by the issuer.

NCD is financial instrument used for taking loan from the financial market. It cannot be converted into equity shares of the issuer in a future date, hence it offers higher interest rate. The NCD offers atleast 1.5 – 2% higher interest than any fixed deposit by a reputed bank and company deposits. NCDs come in both secured and unsecure form, secured #NCDs are backed by assets. Unsecured NCDs entails higher risk.

Added Edge
1. What makes it more attractive is, in the falling interest regime, the bond prices may surge, hence the value of the funds.
2. No TDS deducted on the demat form of investment (physical form does)

Points for the new investors
1. Once you come to know about a new NCD offer, check with your stock broker for online application.
2. Like any other IPO, it has a NCD comes with opening and closing dates
3. NCD offers coupon rate. Coupon rate is the interest rate paid on a bond by its issuer for the term of the security. For example, if a NCD issue comes with a face value of Rs. 100 and coupon rate 10%, the interest earned will be Rs. 10 per annum. However, in the tenure if the NAV price falls or surge, it will have no impact on the interest pay out, it will continue as Rs. 10 per year throughout the tenure. Hence, coupon rate is fixed on the offer price and continue through maturity 
4. Check for the credit rating allotted by #ICRA, #CRISIL, #CARE (triple A rating Suggest good financial health of the issuer, double A may give higher coupon rate, triple A ensures safety of your capital)
5. NCDs are also traded on stock exchanges. Apart from the new offers, investors can also buy exiting NCDs through stock exchanges, however, one need to be double careful and seek guidance from financial planner.  
6. Interests are generally paid through direct credit, RTGS, ECS and NEFT mode. It may offer monthly/ quarterly/ annually/ cumulative options.
7. Tax – The investment is taxed at short term (less than a year) and long term (debt investment more than a year are taxed at 10%) depending on the holding period. The interest will be taxed as per the tax bracket of the investor.
8. This is as liquid as a bank fixed deposit. However, there is no penalty fee for pre-mature withdrawal of this investment
9. Additional Features – Some NCD public issues offer special rate of interest to Senior citizens or to shareholder.

Pros

1. It’s #liquidity is as good as any fixed deposit in bank, which has a specific tenure but can be withdrawn any time. However, FD may charge a penalty fee on interest accrued.. but incase of NCD, there is no penalty.
2. If it is compared with company fixed deposit, company deposits (a popular instrument in the senior citizen segment with 0.25- 0.50% extra interest)comes with various conditions for pre-mature withdrawal, for eg – lock-in periods, penalties etc.
3. NCDs come with Rating from #ICRA #CRISIL #IndiaRatings #CARE which gives a clarity to the investor on the risk involved, higher the rating, lower is the risk (AAA being the highest category, followed by AA, A, A-, BBB and so on)
4. Incase of bankruptcy, NCD holders get preference over shareholders

Cons
1. Incase interest rate increase, the value of the NCD may fall, sometimes even below the Face Value. 
2. Though, the instrument can be traded on the exchanges, one may not find a buyer for NCDs if the trade volumes on bourses are low.



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