IIFL NCDs

IIF's six-year unsecured NCD 2012 Risk-wary investors should stay away from this issue, and even, risk-taking ones should think twice

It is a public issue of unsecured redeemable non-convertible debentures (NCDs) by India Infoline Finance (IIF), an unlisted company, which is a 98.9 per cent subsidiary of India Infoline, a listed company. The issue seeks to raise Rs 250 crore with an option to retain over-subscription up to Rs 250 crore taking the total potential issue amount to Rs 500 crore. It will be open for public subscription from September 5 to September 18 with a minimum application size of Rs 5,000 in the form of five NCDs of face value Rs 1,000, TENURE & RATES: IIF will redeem the NCDs at the end of six years, and investors wanting out before six years will be able to sell their NCDs on NSE and BSE at market-determined rates, provided there is liquidity in trading of these NCDs. Coupon rate (interest rate) is 12.75 per cent. Investors can opt for monthly interest payout, yearly interest payout or cumulated interest. In the first two options, the redemption amount will be Rs 1,000 per NCD, and for the 2,054.50 third option, it will be Rs per NCD.

PURPOSE OF THE ISSUE: The company wants to use the issue proceeds, net of issue ex penses (which can go up to Rs 18.5 crore for a Rs 500 crore issue realisation), for its financing activities in the company's core areas of realty mortgages, home loans, gold loans and capital market finance (such as promoter financing and margin funding and loansagainst-shares). Of IIF's Rs 6,746 crore loan book as on March 31, 41.1 per cent was in gold loans, 39.8 per cent in realty mortgage, 4.9 per cent in home loans and 11.9 per cent in capital market finance.

The 12.75 per cent interest rate is indeed high, more than the 9.25-10.25 per cent being offered by reputed banks on their deposits for similar tenures. But, this is so because the issue is completely unsecured, that is, in case of a bust-up, investors won't have any right on company assets. The six-year tenure is very long for an unsecured debenture issue.

Crisil has given a AA minus (with a stable outlook) rating to the NCD issue, which on its scale of ratings, including plus and minus signs and rating outlooks of positive, stable and negative, is 10 ranks below the highest and safest rating of AAA plus (with a positive outlook). IIF's 39.8 per cent exposure to realty mortgage, largely non-retail in nature, can pose difficulties in case the sluggish commercial realty market does not revive. Risk-wary investors should stay away from this issue, and even, risk-taking investors should also think twice