Finally, India’s first REIT ( real estate investment trust ) opens for subscription on March 18

India’s first REIT (real estate investment trust), Embassy Office Parks REIT plans to raise Rs. 4,750 crore from the market.

The REIT will open for subscription on March 18 and the bid process will close on March 20. The unit price for investment will be determined by the book building process.

According to the document, India’s office real estate market offers 7.5%-8.5% p.a rental yield.

Embassy Office Parks is a joint venture between Blackstone Group and Embassy Group. It holds around 33 million square feet of commercial properties spread across four metro cities Bengaluru, Mumbai, Pune and Noida. Currently, it has leased 95% of its total properties of which, 43.4% have been rented to Fortune 500 companies.

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In December 2018, the portfolio had generated Rs. 1,611 crore of revenue from operations. It is expected to grow by 55.8% by FY2023, said the draft document.

Of the total sale offer, the Embassy Office Parks has allocated Rs.3900 crore for retail and institutional investors.

Of the 33 million sq ft, about 24 million sq ft is operational with 95 % occupancy, yielding a rental income of over Rs 2,000 crore annually. Another 3 million sq ft area is under construction and 6 million sq ft is in the pipeline.

The JV has top MNC clients in its commercial projects. Over 50 % of rent comes from Fortune 500 companies such as Microsoft, Google, Wells Fargo and JPMorgan.

What is a REIT?

REIT is an investment tool that owns and operates rent-yielding real estate assets. It allows individual investors to invest in using this platform and earn income.

REITs are listed entities that invest in income-generating properties and distribute at least 90 % of their income proceeds to unit-holders through dividends. After registration with SEBI, units of REITs will have to be mandatorily listed on exchanges and traded like securities.

Properties listed through a REIT are typically commercial assets that can generate steady and lucrative rental income. Even government-run buildings can be placed under REITs.

REITs offer investors, with Rs 2 lakh in capital, an opportunity to invest in the commercial real estate market. Like listed shares, small investors can buy units of REITs from both primary and secondary markets.

According to a CBRE- CII report, a successful REIT listing would prompt other prominent asset holding companies such as Xander, Brookefield and Canada Pension Plan Investment Board to issue their own offerings, thereby widening the real estate investment scenario in the country.

DISCLAIMER

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

 

Regulator tightens liquid fund norms to mitigate risks

After an introduction of side-pocketing in mutual funds, the Regulator has now tightened norms for liquid funds following a series of credit episodes.

As the market regulator looks to protect mutual fund investors from IL&FS-like default risks, debt schemes widely used by companies to park short-term cash are expected to turn less lucrative.

A regulator has decided to introduce mark-to-market valuation for debt securities having a maturity of 30 days and more. Simply put, liquid funds may become more volatile going forward.

Investors who are willing to ride the fluctuations that can come into a portfolio can consider liquid funds holding securities with longer tenors. But they should choose only those that come with good credit quality and have strict monitoring in place so that unexpected credit situations can’t bring down the values sharply.

“The residual maturity limit for amortization-based valuation by mutual funds shall be reduced from existing 60 days to 30 days.

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Currently, rules say that fund houses have to do mark-to-market valuations of securities having a maturity of 60 days and more.

Debt market experts believe that fund managers will reduce average maturity on their portfolio to less than 30 days to avoid doing mark-to-market valuation. Hence, they would sell debt instruments having a maturity between 31 days and 60 days.

“Liquid funds have been holding debt instruments with less than 60-day residual maturity so that they don’t have to mark-to-market it which helps in reducing volatility in liquid funds. As per the new rule, the market to market (amortisation) limit has been reduced to 30 days which means liquid funds will have to do mark-to-market for debt having residual maturity between 31 and 60 days. To avoid this, liquid funds will want to move to papers with residual maturity of less than 30 days. This will lead to an increase in yield for papers with residual maturity between 31 and 60 days and fund turnover will increase. With stamp duty coming into the picture, we can expect a marginal decrease in liquid fund returns.”

The regulator further said that the difference between traded price and price quoted by rating agencies of security should not exceed 0.025%. This was reduced from 0.1%.

The regulator has asked AMFI to appoint valuation agencies to provide a valuation of money market and debt securities rated below investment grade. Currently, most fund houses rely on ratings by agencies to derive NAV.

However, AMCs can deviate from the valuation provided by agencies by giving a rationale for such deviations.

Check the factsheet regularly if you are invested in debt and balance funds

A quick scan of a liquid fund as on 27 February 2019 shows that 41% of the funds have portfolios with less than 30 days to maturity and, thus, the new directive will not have much impact on their current portfolios. Of the rest, many of the funds have durations not exceeding 35 days where the impact will be negligible. A few funds have portfolio duration of 50-70 days and they may see some volatility. “With the change in valuation norms, liquid funds would witness a marginal reduction in maturity profile, to enable stability in the returns profile. We do not expect significant changes to the return profile with a marginal reduction in maturity.”

Overnight funds have been finding flavour with investors parking money for very short terms. The horizon of investments along with the spreads between liquid funds and overnight funds will continue to remain the key determinant for investors’ choice in this category of funds.”

Among other key decision for mutual funds is allowing fund houses to come up with commodity mutual funds and PMS. In India, mutual fund houses were not permitted to invest in commodities other than gold. However, a few fund houses have thematic funds, which invest in companies engaged in the commodities business.

Commodity funds would be able to invest in a broader spectrum of agricultural, metal and mining commodities such as food crops, spices, fibres, copper, aluminium, oil, gold, silver and platinum.

Note: Mutual fund investments are subject to market risks read all scheme related documents carefully.

DISCLAIMER:

No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here.

9.1% to 9.35% L&T Finance NCD Review

L&T Finance Ltd is proposing to offer latest NCD issue. L&T Finance is going to offer Secured redeemable NCDs. The proposed public issue of L&T Finance Bonds will be open for subscription from 6th March 2019 to 20th March 2019.

L&T Finance Limited is part of the larger L&T Group which is one of the leading business conglomerates in India. L&T Finance Limited Company is one of the leading private non-banking financial services companies in India in terms of total loans outstanding, as of December 31, 2018. Its primary financing business segments are ruralwholesale and housing.

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What is a Debenture?

A long-term debt instrument issued by corporations or governments that are backed only by the integrity of the borrower, not by collateral. A debenture is unsecured and subordinate to secured debt. A debenture is unsecured in that there are no liens or pledges on specific assets.

What are NCDs?

Whenever a company wants to raise money from the public it issues a debt paper for a specified tenure where it pays a fixed interest on the investment. This paper is known as a debenture. Some of the debentures are termed as convertible debentures since they can be converted into equity share on maturity. A Non – Convertible debenture or NCD do not have the option of conversion into shares and on maturity, the principal amount along with accumulated interest is paid to the holder of the instrument.

There are two types of NCDs-secured and unsecured. A secured NCD is backed by the assets of the company and if it fails to pay the obligation, the investor holding the debenture can claim it through liquidation of these assets. Contrary to this there is no backing in unsecured NCDs if company defaults. However, any company seeking to raise money through NCD has to get its issue rated by agencies such as CRISIL, ICRA, CARE and Fitch Ratings. Higher ratings (e.g. CRISIL AAA or AA-Stable) means the issuer has the ability to service its debt on time and carries lower default risk. A lower rating signifies a higher credit risk.

Issue Details

Issue Date: Mar 6th 2019

Issue type: Fixed price issue NCD

Issue Size: Rs. 1500/- crore

Face value: Rs. 1000/- per NCD

Issue price: Rs. 1000/- per NCD

Market Lot: 1 NCD

Min. Quantity: 10 NCD

Issue Allocation Ratio: 30% of the Issue is for retail investors & 30% for HNIs (HNIs – individuals (applying for an amount of > Rs 10 lakh).

PUT & Call options: Put & Call options are not available.

Allotment of NCDs is on a first come, first serve basis.

Ratings: ICRA, CARE, IND has assigned AAA rating

Promoters: L & T Finance holding Ltd.

Offerings :

The company offers coupon rate ranging 8.75% to 9.35% depending on the tenures and the mode of interest payments which is either monthly or yearly

Objects of the issue:

For onward lending, financing, refinancing the existing indebtedness of L & T Finance Ltd. And General corporate purpose

Taxation:

TDS is not applicable on the listed debentures’ interest payouts (which are in Demat form). Else, TDS will be applicable if the interest exceeds the threshold limit of Rs.5,000/- in a financial year.

Interest earned on NCD bonds is taxable as per the tax slab of the investor.

If you sell NCDs on stock exchange before one year from the date of purchase, Short Term Capital Gains Tax is applicable. Tax rates depend on the tax slab you fall into.

If you sell NCDs on stock exchange before maturity but after one year, Long Term Capital Gains Tax (if any) at 20% with indexation & 10% without indexation is applicable.

Who can Apply?

This issue is open to all Indian residents, HUFs and Institutions.

Category I – Institutional Investors – 20% of the issue is reserved

Category II – Non-Institutional Investors, Corporates – 20% of the issue is reserved

Category III – High Networth Individuals (HNIs) – 30% of the issue is reserved

Category IV – Retail Individual Investors – 30% of the issue is reserved

Why you should invest?

 AAA Credit rating means very less likely hood of credit default

The NCD is secured, which means the above debt is backed by assets of the company

Part of the reputed conglomerate L&T Group

The interest rates are 2% higher than your regular Bank FDs

No TDS if invested in Demat For

Why should you not invest? 

There are NCDs available in the secondary market which have higher yields with a similar rating. The problem is low liquidity and hence is difficult to buy in large numbers.

The present Tax-Free Bonds are offering yields up to 6.5% in the secondary market, which is a better investment for People in the highest tax bracket.