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Shriram Transport Finance NCDs

Having tasted success through a couple of bond issuances earlier that were oversubscribed, Shriram Transport Finance has come up with another NCD (nonconvertible debenture) issue. The company plans to offer NCDs aggregating . 500 crore with an option to retain another . 500 crore. NCDs are becoming popular among investors due to higher coupon rates and high liquidity as they are listed on the stock exchanges.

THE PRODUCT:

As with the earlier issues, the debentures will be offered on a first-come, first-serve basis. The issue opens on June 27 and closes on July 9. However, the company has the option to close the issue earlier. There are two options in the NCDs: the first option comes with a five-year tenure, and the second has a term of three years.

Under the first option, the interest rate is 11.60% for investments of . 5 lakh and below and the interest rate payable will be 11.35% if the investment is above . 5 lakh. The second option offers an interest of 11.35% for investments of . 5 lakh and below and 11.10 % for investments above . 5 lakh. For QIBs or NIIs, the interest payable is lesser at 11.10% for 5 years and 11% for a period of three years. The NCDs have a face value of . 1,000 and one can apply for a minimum of . 10,000. The secured NCD issue is rated "AA/Stable" by CRISIL and "CARE AA " by CARE.

The rating of the NCDs by CRISIL indicates high degree of safety with regard to timely payment of interest and principal on the NCDs, while the rating of NCDs by CARE indicates high safety for timely servicing of debt obligations. The interest payable would be taxable, though there is no tax deduction at source (TDS). The NCDs would be listed on the National Stock Exchange (NSE) and would be available only in the demat form.

WHY TO APPLY:

The coupon rate is attractive for retail investors especially in the fiveyear category at 11.6%. Even if you are in the highest tax bracket, post tax returns are decent at 8.06%.

WHY NOT TO APPLY:

Though NCDs are listed on the stock exchange, hardly any trading takes place. Some earlier NCD issues of Shriram Transport (Series NF and Series NG) are available in the secondary market, with a yield ranging between 12% to 12.8%, which is slightly higher than the current yield.

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