IIFL Finance NCD issue opens today: Should you invest
Non-convertible debentures (NCDs) are fixed-income instruments issued as a public issue to accumulate long-term capital appreciation. So, should you invest in this issue? Read on to know
IIFL Finance will issue secured redeemable non-convertible debentures (NCDs) on Friday, aggregating to Rs 300 crore, with a green-shoe option to retain over-subscription of up to Rs 1,200 crore (aggregating to a total of Rs 1,500 crore). The non-banking financial company will, additionally, open a public issue of secured bonds to raise up to Rs 1,500 crore, for business growth and capital augmentation. The bonds offer up to a 9 percent yield.
The public issue will be available till June 22, 2023, with an option of early closure. The allotment will be made on a first-come first served basis.
Non-convertible debentures (NCDs) are fixed-income instruments issued as a public issue to accumulate long-term capital appreciation. They fall under the debt category and have a fixed maturity date, and the interest can be paid along with the principal amount either monthly, quarterly, or annually depending on the fixed tenure specified.
Rate of return and tenure
The IIFL bonds offer the highest effective yield of 9 percent per annum for a tenure of 60 months. The NCD is available in tenures of 24 months, 36 months and 60 months. The frequency of interest payment is available on an annual, at-maturity basis and with a monthly option for 60-month tenure.
The NCDs come with a face value of Rs 1,000 and one can invest a minimum of Rs 10,000.
Options and coupon rates
| Option | Tenure | Interest payment | Coupon rate | Effective yield | Redemption value |
| Series 1 | 24 months | Annual | 8.35% | 8.34% | Rs 1,000 |
| Series 2 | 24 months | Cumulative | NA | 8.35% | Rs 1,174.25 |
| Series 3 | 36 months | Annual | 8.50% | 8.49% | Rs 1,000 |
| Series 4 | 36 months | Cumulative | NA | 8.50% | Rs 1,277.60 |
| Series 6 | 60 months | Monthly | 8.65% | 8.99% | Rs 1,000 |
| Series 7 | 60 months | Annual | 9.00% | 8.99% | Rs 1,000 |
| Series 8 | 60 months | Cumulative | NA | 9.00% | Rs 1,539.35 |
(Source: IIFL Securities)
Lead managers and listing
The lead managers to the issue are Edelweiss Financial Services Limited, IIFL Securities Limited, Equirus Capital Private Limited and Trust Investment Advisors Private Limited. The NCDs will be listed on the BSE and National Stock Exchange of India Limited (NSE), to provide liquidity to investors.
Non-eligibility
The following categories of persons, and entities, shall not be eligible to participate in the Tranche II Issue and any applications from such persons and entities are liable to be rejected:
a) Minors without a guardian name* (A guardian may apply on behalf of a minor. However, application by minors must be made through application forms that contain the names of both the minor applicant and the name of the guardian);
b) Foreign nationals, NRI inter-alia including any NRIs who are (i) based in the USA, and/or, (ii) domiciled in the USA, and/or, (iii) residents/citizens of the USA, and/or, (iv) subject to any taxation laws of the USA;
c) Persons residing outside India and other foreign entities;
d) Foreign Institutional Investors;
e) Foreign Portfolio Investors;
f) Non-Resident Indians;
g) Qualified Foreign Investors;
h) Overseas Corporate Bodies;
i) Foreign Venture Capital Funds; and
j) Persons ineligible to contract under applicable statutory/ regulatory requirements
Credit rating and investment strategy
The credit rating has been AA/Stable by CRISIL Ratings and AA/Stable by ICRA, which indicates that the instruments are considered to have a high degree of safety for timely servicing of financial obligations and carry very low credit risk, IIFL Securities said in a statement. Additionally, Moody’s upgraded IIFL Finance’s rating from B2 to B1 (stable) in the fourth quarter of FY23.
Notably, IIFL Finance duly repaid $400 million worth of dollar bonds in April, raised through medium-term notes in February 2020. The firm has maintained a low level of NPAs over the years of operations with a gross NPA of 1.8 percent and net NPA of 1.1 percent. As on March 31, about 73.53 percent of the company’s consolidated loan book is secured with adequate collaterals which help to mitigate risks further.
In FY23, IIFL Finance reported a profit after tax of Rs 1,607.5 crore, up 35 percent on year with a return on equity of 19.9 percent.
Credit rating calculates the firm's potential to raise cash from its internal and external operations and sustainability. This is the best parameter that can reveal the company's financial position. So, considering the credit rating, one can think of investing (subject to their risk appetite), experts opine.
However, it is paramount to understand the risks related to NCD investments. Returns are not guaranteed. Also, investors should consider the capital adequacy ratio (CAR) and Interest Coverage Ratio (ICR). CAR gauges the company's capital and sees if the company has sufficient funds to survive potential losses. ICR, on the other hand, determines the firm's ability to comfortably settle the interest on its loans at any given time.
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