Tata Capital, a wholly owned subsidiary of Tata Sons has floated its public issue of Non Convertible Debentures (NCD). The size of the issue, alongwith oversubscription, is 1500 crores and has a tenor of 5 years. Allotment would be made on a first-come-first-served basis.
Tata Capital is a Non-Deposit taking Non Banking Financial Company (NBFC). It encompasses several areas of operations like Personal/Auto Loans, SME/Infrastructure Finance, Wealth Management, Investment Banking, Private Equity and Treasury Advisory. This enables it to get fund and fee based income.
What makes the issue appealing :
• 1. Strong Promoters : Tata Capital is a wholly owned subsidiary of Tata Sons.
• 2. Reasonable Safety : These are secured debentures and are rated LAA+.
• 3. Attractive Interest Rates : 11% for the monthly option, 11.25% for the quarterly option and 12% for the annual or cumulative option. Given the Fixed Income scenario, this is a good coupon.
• 4. No TDS on interest (as the NCDs would be issued in a dematerialized form and listed as a security in the National Stock Exchange)
• 5. Flexible options : Investors can choose from amongst monthly, quarterly, annual and cumulative options.
• 6. Listed on the NSE : Liquidity available at anytime.
• 7. Tax computed on Capital Gains (should you be selling on the exchange).
• 8. Put/Call Option in 3 years time : This is one more outlet for liquidity (though the issuer will most likely call if interest rates dip).
• 9. Good management team and Board of Directors : Mr. Kadle, the MD earned a well deserved reputation as a Finance Wizard while at Tata Motors. Mr. Hussain and Mr. Sinor lend considerable weight to the board.
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At a time when there are few quality Fixed Income offerings, this issue does indeed look worthwhile. The interest rate offered is far superior to bank FDs, the tax treatment is also favourable (no TDS on interest and Capital Gains Tax applicability if traded on the stock exchange).
While the issue is being made on the face of a slow-down, the fact that the company spans many business activities de-risks it. Also, financial services as a business in India is a demographic and growth story. With a high savings rate on one hand and capital starved individuals and enterprises on the other, this sector has to play market maker. Combined with low penetration of many financial products and services, this sector will see a boom in any uptick.
For those looking at good Fixed Income options, this is certainly not a bad idea, sirji.