PremiumMumbai: Shriram Transport Finance Company Limited will hit the market with a Non-Convertible Debenture (NCD) issue on 6 Jan. The issue has a base size of ₹200 crore with the company retaining the option to keep up to ₹1,000 crore in case of oversubscription. The NCD will be offered at different interest rates depending on the tenor and interest payment frequencies. The highest rate for annual interest is 9.1% for a 7-year tenor. The NCDs are rated ‘CARE AA+; Stable’ by CARE Ratings Limited, ‘CRISIL AA+/Stable’ by CRISIL Limited and ‘IND AA+: Outlook Stable’ by India Ratings and Research Private Limited.An AA rating is one notch below the highest rating of AAA. According to CRISIL, an AA rating denotes a high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk, as per the CRISIL website. The highest rate is lower than the 9.70% rate the company offered in its July NCD issue, in sync with the overall reduction of interest rates in the economy.
Shriram Transport is a non-banking finance company (NBFC) which lends money for the purchase of commercial vehicles. It has a pan-India presence with a network of 1,545 branches and employs 26,630 full-time employees as of 31 March, 2019. The NCD will be available for tenors of 3, 5 and 7 years. If you prefer monthly interest, this will be available for tenors of 3, 5 and 7 years at interest rates of 8.52%, 8.66% and 8.75% respectively. If you choose the annual coupon, you will get interest rates of 8.85%, 9% and 9.1% respectively over the three tenors. The rates are higher for annual interest because of the lower payment frequency. Senior citizens will get an additional 0.25% interest rate. The NCDs are proposed to be listed on the National Stock Exchange of India (NSE) and the BSE Limited (BSE).
The interest rates on the NCD are slightly higher than most bank interest rates which are currently in the 6.5%-8.5% range. You can view the bank rates in excess of 8% here. However NCDs carry a much higher risk than either bank fixed deposits or even debt funds which hold a basket of debt paper. Interest from NCDs is taxed at slab rate just like fixed deposits. However unlike FDs, TDS is not deducted on them if the NCDs are held in dematerialized (demat) form. “The current economic environment is challenging for NBFCs. However Shriram Transport has a solid reputation in this space. Investors with a high risk appetite can look at the NCD given its attractive interest rate," said Tarun Birani, founder, TBNG Capital Advisors.
