Sunday, June 26, 2011

Shriram Transport Finance Company Ltd. - Non Convertible Debenture

Shriram Transport Finance Company Limited has come out with a public issue of secured Non Convertible Debenture (NCD) aggregating upto Rs 50,000 Lacs with an option to retain over-subscription upto Rs 50,000 Lacs for issuance of additional NCDs, aggregating to a total of Rs 1,00,000 Lacs. The company is one of the leading asset financing NBFC, which predominantly finances second-hand commercial vehicles. It has more than Rs 36,000 crore of assets under management and Rs 1,230 crore of net profit for the year ended March 2011.

Opening and Closing Dates:
The issue shall open on 27th June and shall close on 9th July, 2011. The allotment is on a first cum first serve basis and the company has an option of closing the issue at an earlier date, once it receives the amount it has targeted.

Liquidity:
This NCD will be tradeable in secondary market and will be listed on NSE.

Interest Rate:
The interest rate on the NCDs payable annually is 11.6 per cent for an investment of less than Rs 5 lakh. For more than Rs 5 lakh, the coupon rate is 11.35 per cent. While there is a 3-year option with 11.35 per cent available, the 5-year option is more suitable, given that the coupon rate is high and investors have put option after 4 years. Post-tax yields will be lower given the interest income is taxed at effective tax slab of the investor. The issue lacks an option for cumulative interest rate.

Options:
The five-year NCD has a put and a call option after 48 months. Put option means that investor has an option to sell the NCD while the call option gives the company the option to repay prematurely.

Recommendation:
The company enjoys a AA+ credit rating from CARE and AA rating from Crisil, which signify high investment grade. The interest rate is attractive compared to prevailing bank deposit rates. Most banks offer rates of 8.75 per cent for this tenure. NCDs will be riskier than bank deposits, which are insured up to Rs 1 lakh. However, this issue is secured by a charge on the company's assets. Instruments of comparable companies in the secondary market offer 10.4 per cent, for credit ratings of AA and AA+. We would recommend this issue to investors.

Allotment:
Click here to check Shriram Transport Finance Company Allotment Status!


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