L&T Finance's secured non-cumulative debenture (NCD) can be considered only by investors who are looking to diversify their debt portfolio.
The rates offered by L&T Finance are 8.4 per cent and 8.5 per cent for semi-annual payout and annual payout respectively. However, better options with a superior credit profile may become available given the rising interest rate expectations. The rates are higher compared to the (much safer) bank deposits (7.75 per cent is the highest offered by bank deposits for a 3 year tenure).
However, asset financing companies such as Mahindra & Mahindra Financial Services, Shriram Transport Finance and Dewan Housing Finance offer better rates while enjoying similar credit rating as that of L&T Finance.
Other deposits also offer higher rate of interest to senior citizens which is not the case with the current non-cumulative debenture issue.
Having said this, the advantage of the non-cumulative debenture option over deposits is its superior liquidity; it can be traded in the market and is secured and enjoys priority over public deposits.
The company
L&T Finance is an asset financing non-banking financial company (NBFC) that provides equipment financing, tractor and commercial-vehicle financing, micro-financing and lending against shares.
The company entered mutual fund business by acquiring DBS Cholamandalam AMC recently. The company has 432 branches and points of presence. L&T Finance has a loan book size of Rs 6,016 crore with 87 per cent of the book secured.
Investment grade credit rating (ICRA LAA+), capital adequacy ratio of 15.6 per cent and a strong parent who is ready to pump in capital from time to time lend confidence to the issue.
L&T Finance's loan book comes to the extent of 38 per cent from corporate financing, with the balance from retail loans.
Asset quality has witnessed some slippages but is till in manageable with NPA ratio at 2.7 per cent.
The company's net interest income and net profits for the first half of 2009-10 stood at Rs 212 crore and Rs 57 crore respectively.
Earnings seem to be improving after witnessing a fall for the year ended March 31, 2009.
Options
Investors can choose between the three-year semi-annual and annual payouts with pre-tax coupon rates of 8.4 per cent and 8.5 per cent respectively.
While post-tax returns will be lower, lack of a cumulative option exposes these instruments to reinvestment risk (the risk that you have to invest the interest receipts at a lower rate). The payout options are also not monthly which doesn't provide regular income required.
The previous tranche of L&T Finance NCD (five year) currently trades at a yield-to-maturity (assuming reinvestment) of 7.7 per cent, which is indicative of slight premium on listing for this instrument.
However, capital gains on this instrument appear less likely as rising interest rates and widening corporate spreads may impact bond prices.
Issue Details
The non-cumulative debenture offer plans to raise Rs 500 crore (including the green shoe option of Rs 250 crore) with 30 per cent or Rs 150 crore reserved for retail investors.
The offer opened on February 9, 2010, and closes of February 22, 2010. But the allotment to investors is on a first-come-first-serve basis.
No comments:
Post a Comment