New Delhi-based Indiabulls Commercial Credit Limited (ICCL), a Non-Banking Financial Company (NBFC), has announced the public issue of secured non-convertible debentures, which opens for subscription from January 05, 2023, and closes on January 27, 2023. The Tranche I issue has a base issue size of Rs 100 crores with an option to retain oversubscription up to Rs 100 crore, aggregating up to Rs 200 crore.
NCDs are fixed-income instruments which are used by companies to raise long-term capital. They are types of debentures that cannot be converted into equity shares at the time of maturity. NCDs are classified as secured and unsecured. Secured NCDs are preferred over unsecured NCDs at the time of liquidation. However, due to the higher risk carried by unsecured NCDs, they offer higher interest rates than secured NCDs.
Features of NCD
Company Details: It was incorporated in 2006 and is a wholly owned subsidiary of Indiabulls Housing Finance Limited, with a loan book of Rs 8,846.99 crore as of September 30, 2022. For Fiscal 2022, ICCL had a profit after tax (PAT) of Rs 508.22 crore on a total income of Rs 1,841.88 crore, compared with Rs 139.04 crore and Rs 1,632.94 crore, respectively, in the previous fiscal. For the six months ended September 30, 2022, ICCL reported a PAT of Rs 236.90 crore on a total income of Rs 937.11 crore, compared with Rs 268.53 crore and Rs 859.60 crore, respectively during the corresponding period of the previous fiscal. The company focus on asset classes such as LAP and commercial real estate.
Yield: The issue offers various series of NCDs with coupon rates ranging from 9.05 per cent p.a to 10.30 per cent p.a and will be listed on BSE Limited and National Stock Exchange of India Limited. The NCD has a face value of Rs 1,000. Amount on maturity for the NCD holders in Category I (Institutional Investors) & Category II (Non-Institutional Investors) ranges from Rs 1,000 to Rs 1,315.10 per NCD and for Category III (High Net-worth Individual Investors) and Category IV (Retail Individual Investors) ranges from Rs 1,000 to Rs 1,333.20 per NCD. The Tranche I issue has an option for staggered redemption through annual payments under 36 months (Series IV and Series VI) and 60 months (Series VII and Series VIII).
In the NCD public issue, investors have 4 major categories- Category 1 (Qualified Institutional Bdders or QIB), Category 2 (Non Institutional Investors or NII ), Category 3 (High Networth Individuals or HNI) and Category 4 (Retail Institutional Investors or RII)
The Company is also offering an additional incentive of 0.25 per cent to the Category III and Category IV Investors who are also holders of NCD(s)/bond(s) previously issued by the company, or its holding company or are equity shareholder(s) of Indiabulls Housing Finance.
Taxability: When held till maturity, the interest earned will be charged to tax as “Income from Other Sources” at the marginal rate. If sold after a year, then it is considered a long-term capital gain, which is taxable at 10 per cent without indexation. If sold within one year, then short-term capital gains tax is applicable according to the tax slab one falls into.
Tenure: The NCDs have tenures of 24 months (Series I, II, III), 36 months (Series IV, V, VI), and 60 months (Series VII, VIII). Interest payment modes for the NCDs are annually, monthly or cumulative as per the series selected by the investors.
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Credit Rating: The NCDs have been rated “CRISIL AA/Stable” by CRISIL Ratings Limited and “[ICRA]AA (Stable)” by ICRA Limited. The Lead Managers are Edelweiss Financial Services Limited, Elara Capital (India) Private Limited, and Trust Investment Advisors Private Limited. Beacon Trusteeship Limited is the Debenture Trustee to the Issue and KFin Technologies Limited is the Registrar to the Tranche I Issue.
Net proceeds: Net proceeds of the Tranche I Issue, after meeting the expenditures of and related to the Tranche I Issue, at least 75 per cent shall be utilised for the purpose of onward lending, financing, and for repayment of interest and principal of existing borrowings of the Company and up to 25 per cent for general corporate purposes.
What to do? One should be very careful in allocating large sums into NCDs. Liquidity usually is low in such bonds and that’s why bid-ask spreads are usually high. They are taxed at a marginal tax rate when held till maturity and hence are not tax efficient unless one tries to sell in the market after one year where the tax rates applicable will be 10 per cent. Moreover, before investing one needs to understand the credit risk in the portfolio. One can look at diversifying this credit risk via a credit risk mutual fund where the fund manager is also actively looking at the portfolio. For small investors, one should be careful about their allocation.