Sachin Bansal-led Navi Finserv’s NCD opens today. Should you invest?

Sachin Bansal’s Navi Finserv, a wholly-owned subsidiary of Navi Technologies, has announced the public issue of secured Non-Convertible Debentures (NCDs), which opens today on May 23 and closes on June 10 with an option of early closure or extension. The issue size is Rs 600 crore with a base issue of Rs 300 crore and an option to retain an over-subscription of another Rs 300 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 better interest rate than secured NCDs.

NCD Details

Yield: The NCD offers an effective yield of up to 9.77 per cent for the tenure of 27 months with an annual payment option. On the monthly payment option, the yield works out to 9.80 per cent. On the tenure of 18 months, it offers an effective yield of 9.59 per cent and 9.57 per cent on monthly and annual payment options, respectively. 

Tenure: There are 4 series of the NCD having tenure from 18 to 27 months with monthly and annual payment options. The face value of NCD is Rs 1,000 each and the minimum investment is Rs 10,000. 

Credit Rating:  The issue has been rated IND A/ Stable by India Ratings & Research.

Issue Proceeds: NCD issue aims to raise funds for onward lending and financing purposes. “This will further diversify our borrowing profile and add more retail investors to our portfolio to complement our wide base of Institutional partners,” said Ankit Agarwal, Managing Director, Navi Finserv.

Taxability: When held till maturity, the interest earned will be charged to tax as “Income from Other Sources” at the marginal rate. If sold within one year, then short-term capital gains tax is applicable according to the tax slab one falls into. If sold after a year, then it is considered a long-term capital gain, which is taxable at 10 per cent without indexation.

Company Details: The company offers digital personal loans and home loans under the ‘Navi’ brand. The company’s net worth stood at Rs 1,189.57 crore as of December 31, 2021 and maintained a standalone debt to equity ratio of 2.1 times. The consolidated AUM of the lending vertical stood at Rs36.5 billion as of end-December 2021. 

Navi Technologies has also filed its draft document with Securities and Exchange Board of India (SEBI) for a public issue.  Flipkart's co-founder, Sachin Bansal co-founded Navi with Ankit Agarwal, a former banker who has held senior positions across Deutsche Bank and Bank of America. 

What to do? The bonds of Navi Finserv Limited are rated as ‘A’ which relatively indicates medium risk. 

“Considering the risk-reward ratio and the number of options available to invest in the secondary market, long-term investors can look into investing a very small portion of their fixed income portfolio into the above NCD, and that too is only for diversified investment purposes," pointed out Ankit Gupta, co-founder, BondsIndia.com.

"There are other suitable options in the same or better rating category which are giving a higher return as compared to the Navi Finserv NCD May 2022 issuance. Though the company has a strong promoter backing and in the long run looks promising to invest into investing in the issuance for the sole purpose of trading after listing might not be available to investors. They should rather look at it as a hold till maturity of the Navi Finserv NCD IPO," Gupta added.

Also read: Navi Finserv to raise Rs 600 crore through public issue of NCDs