Now HDFC MF FMP Extends Maturity By 380 Days

Rs. 339-crore HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1) was launched on Feb. 3, 2016. It has generated 9.5% CAGR since launch. Subsequent to the latest announcement of the rollover, the scheme shall mature on April 29, 2020. The existing maturity date of the scheme was April 15, 2019.

The reason for roll-over is not stated, but a close study of HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1)’s portfolio shows that it has close to combined 20% exposure in two Essel Group firms.

HDFC MF

Holding of HDFC Fixed Maturity Plan – 1168 Days 

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Almost 10% of HDFC Fixed Maturity Plan – 1168 Days – February 2016 (1)’s money is in debentures of Edisons Infrapower and Multiventures. Another 10% is in debentures of Sprit Infrapower and Multiventures. This means as much as 20% of the Rs 339 crore of FMP money is in these two Essel Group firms.

Essel Group hopes to sell a stake in Zee Entertainment. If the stake sale happens and money comes to Essel, everybody including lenders, goes back home happy with their promised amount. If the stake sale does not fructify by that deadline, lenders and Essel group promoters may have to arrive at a new deadline.

Choice for investors

Rollover will be done by written consent of investors till 5.30pm on April 12. Redeeming investors will be given full principal + interest ex of Zee exposure

 

Essel and zee group exposure: Investors in some FMPs of Kotak Mutual Fund that mature between April 8 and May end, will not get their full redemption amount back on maturity.

Kotak FMP Series 127 and 183 that matured on April 8 and April 10 had an exposure of nearly 18 percent and 19 percent, respectively, to the Essel Group.

The scheme said it may face a delay in recovering its money that it had invested in the non-convertible debentures (NCD) of two of Essel group companies, namely Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd.

As a result, investors may get their part redemption proceeds upon the scheme’s maturity and the rest will come to them as and when the fund house recovers the money from the companies.

Investors may get part redemption, rest when fund house recovers money scheme facing delay in recovering money from NCDs of two Essel group company. The FMP was launched around November 2015.

risk

Although the NCDs are backed by equity shares of Zee Entertainment Enterprises Limited (Zee), most of the lenders and mutual funds who had lent money (in other words, bought the debt securities) to the Essel group had chosen to not sell the shares to recover the money if there is any default.

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

Lenders have granted this moratorium till around September 2019 by which time they, including Kotak AMC, expect the group to repay all its dues.

The 3- year FMP scheme, which matures in April-May 2019, has invested in debt securities, money market instruments and government securities. Amongst other investments, the scheme also invested in Non-Convertible Debentures (NCDs) issued by Edisons Utility Works Pvt Ltd and Konti Infrapower & Multiventures Pvt Ltd (both are Essel Group companies – secured by equity shares of Zee Entertainment Enterprises Limited) and IL&FS Transportation Networks Limited (Credit Enhancement by Parent Support Agreement of IL&FS). The three firms are facing headwinds due to company and sectoral-specific issues. For IL&FS Transportation Networks, Kotak Mutual Fund has made a 100% provision for this investment as the company has been classified in the Red category where recovery is uncertain and will be dependent on the resolution plan achieved by the new board/NCLT.”

Kotak FMP due for maturitykotak

NCDs or debt securities that are backed by the group companies equity shares come with a cover that is agreed upon at the time of the agreement.

Total of 10 fund houses namely ICICI, HDFC, KOTAK, FRANKLIN, UTI, L&T, RELIANCE,SBI etc..had lent to 16 companies belonging to Essel Group. Some of this money lent was backed by shares of the above companies that were pledged.

Overall the mutual fund industry has an exposure of around Rs.8000 crs to Zee/Essel Group in deb across mutual funds and schemes. Of this around 1700 cr is in FMPs and the rest in open-ended debt funds.

Detail portfolio of Kotak FMP S127 

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Detail portfolio of Kotak Fixed Maturity Plan S183

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Totally around 55 FMPs have exposure to Zee/Group Debt. The maturities have just started. In the next 2-3 months, almost 30-40 of these FMPs will mature. So all the investors in such FMPs may be impacted

“This has resulted in a breach of top-up covenants…there were a lot of deliberations with the promoters of the Essel Group along with other lenders (Mutual Funds, NBFCs etc). A supermajority of lenders have decided not to declare an event of default as it may result in steep fall in price given panic selling in the Zee thereby eroding collateral value and resulting in sub-optimal recovery,” said the note by Kotak AMC to its investors.

Do your mutual funds have exposure to Essel Group?

The fund house added that “Essel promoters are working for the resolution of above through a strategic sale of Zee in a time-bound manner. The above resolution is likely to be achieved by September 30, 2019 as per communication from Essel promoters.”

Meanwhile, the FMP is due for maturity. How it pays back to the investors remains to be seen, as the fund house has not done side-pocketing yet for this particular scheme. Side pocketing is a practice whereby the bad asset- the debt security that defaulted- in a scheme is segregated from the rest of the scheme. Once segregated, a set of units will contain investments made in the troubled paper, while the other set of units will contain all other investments and cash holdings. The good part of the scheme is open for sales and repurchase, but the bad portion is frozen. If and when the fund house recovers the money from the bad assets, it pays off the money to unit holders whose investments were stuck in the fund before the default.

Conclusion: You have to wait and hope the problem resolves. The probability of the problem resolving is high and you may get your total money back. And also interest for this period.

Polycab India Ltd IPO Review and list of anchor investors

Polycab India Ltd is a manufacturer and seller of wires, cables and fast moving electrical goods. Its a popular brand for wires in India. They sell their products under brand name “POLYCAB”. They are one of the largest manufacturers of wires in the industry. The product range includes power cables, control cables, solar cables, building wires and more. The other products includes welding cables, round cables, railway signaling cables, speciality cables and green wires. The other business includes electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories.

For Fiscal 2018, they have a market share of approximately 18% of the organized wires and cable industry and approximately 12% of the total wires and cables industry in India, estimated at ₹ 525 billion based on manufacturers realization. Apart from wires and cables, they manufacture and sell FMEG such as electric fans, LED lighting and luminaires, switches and switchgears, solar products and conduits and accessories.

polycab

Polycab India raises Rs 401 cr from anchor investors and the List of anchor investors

IPO Dates & Price Band:

  • IPO Open: 05-April-2019
  • IPO Close: 09-April-2019
  • IPO Size: Approx ₹1346 Crore
  • Face Value: ₹10 Per Equity Share
  • Price Band: ₹533 to ₹538 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 35%
  • Equity: 17,582,000 Shares

Market Lot:

  • Shares: Apply for 27 Shares (Minimum Lot Size)
  • Amount: ₹14,526

Allotment & Listing:

  • Basis of Allotment: 12-April-2019
  • Refunds: 15-April-2019
  • Credit to demat accounts: 16-April-2019
  • Listing: 18-April-2019

Company Promoters:

  • Inder T Jaisinghani
  • Ajay Jaisinghani
  • Ramesh T Jaisinghani

Polycab IPO Lead Managers:

  • Axis Capital Ltd
  • Citigroup Global Markets India Pvt Ltd
  • Edelweiss Financial Services Ltd
  • IIFL Holdings Ltd
  • Kotak Mahindra Capital Company Ltd
  • Yes Securities (India) Ltd

Polycab IPO Registrar:

Karvy Computershare Private Limited

Object of the issue:

The Company shall not receive any proceeds from the Offer for Sale
The Net Proceeds from the Fresh Issue are proposed to be utilised towards the following objects:
1. Scheduled repayment of all or a portion of certain borrowings availed by the Company;
2. To fund incremental working capital requirements of the Company; and
3. General corporate purposes

Qualitative Factors:

Market leader in wires and cables in India
Diverse suite of electrical products with varied applications across a diverse customer base
Strong distribution network
Manufacturing facilities with high degree of backward integration
Strong brand in the electrical industry
Experienced and committed management team

 key

Key Business Strategies:

Enhance and strengthen our leadership position in wires and cables

Continue to expand the FMEG business

Expand distribution reach

Continue to invest in technology to improve operational efficiencies, customer satisfaction and sales

Strengthen brand recognition

Basic Financial Details:

financial

Financials( Consolidated) of Polycab India Ltd:

Earnings per Share (EPS)2017-18 Rs 26.23
Earnings per Share (9 M)2018-18 Rs 25.31
Book value as on 31.12.2018 Rs. 192.64
RoNW  for 2017-18 : 15.78%
Upper Price Band/last EPS: 20.49
Upper offer price/Book Value Ratio: 2.79

If we annualize consolidated EPS of Rs 25.31 for 9 months ended Dec-18 and a higher price band of Rs 538, the P/E works out to 16x. Similarly, if we take consolidated EPS of 3 years average of Rs 20.79, P/E works out to be 26x. Means company is asking highest price band of Rs 538 in the P/E of 16x to 26x. Its competitors like Havell India is trading at P/E of 72.5x (Highest), Bajaj electricals are trading at 61.42x and KEI Industries at P/E of 23x (Lowest) and the industry average is at 54x,hence the highest Polycab IPO Price of Rs 538 per share is reasonably priced.

peers

Risk:

Its Company, Subsidiaries, Joint Ventures, Directors and Promoters are involved in certain criminal and civil legal proceedings. Any adverse decision in such proceedings may render us/them liable to liabilities/penalties and may adversely affect our business, financial condition, results of operations and cash flows.

Significant increases or fluctuations in prices of, or shortages of, or delay or disruption in the supply of primary raw materials could affect its estimated costs, expenditures and timelines which may have a material adverse effect on its business, financial condition, results of operations and cash flows.

Polycab continued operations at its manufacturing facilities are critical to it’s business and any disruption, breakdownor shutdown of its manufacturing facilities may have a material adverse effect on its business, financial condition, results of operations and cash flows.

Polycab is heavily dependent on the performance of the wires and cables market. Any adverse changes in the conditions affecting the wires and cables market can adversely impact its business, financial condition, results of operation s,cash flows and prospects.

Polycab inability to maintain the stability of its distribution network and attract additional distributors and dealers may have a material adverse effect on its results of operations and financial condition.

If polycab are unable to maintain and enhance its brand, the sales of its products will suffer, which would have a material adverse effect on its results of operations.

Polycab is highly dependent on its key management team as well as its mid-to-senior personnel and its success depends in large part upon its Promoters. The loss of or its inability to attract or retain such persons could materially adversely affect its business performance.

Polycab has substantial capital expenditure and working capital requirements and may require additional financing to meet those requirements, which could have a material adverse effect on its results of operations and financial condition.

Polycab faces significant competitive pressures in its business. Its inability to compete effectively would be detrimental to its business and prospects for future growth.

Polycab operates in a labor-intensive industry and is subject to stringent labor laws and any strike, work stoppage or increased wage demand by its employees or any other kind of disputes with its employees could adversely affect its business, financial condition, results of operations and cash flows.

Polycab depend on a limited number of third parties for the supply of its primary raw materials and delivery of products and such third parties could fail to meet their obligations, which may have a material adverse effect on its business,results of operations, financial condition and cash flows.

Grey market premium

Current GMP is Rs.75/- to 80/-  and Kostak is Rs. 700/-

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.

Metropolis Healthcare IPO Review and List of anchor investors

Metropolis Healthcare, a diagnostics company, has a presence across 19 states, with operational network spread across 197 cities in India. The company offers a range of clinical laboratory tests and profiles used for prediction, early detection, diagnostic screening and confirmation and/or monitoring of the disease.

During the nine months period ending December 31, 2018, company conducted approximately 12.3 million tests from approximately 6.6 million patient visits as compared to approximately 16 million tests from approximately 7.7 million patient visits during the financial year 2018.

Moreover, the company has shown good revenue growth in the last 5 years. It is a debt free company.

The company offered a broad range of approximately 3,487 clinical laboratory tests and 530 profiles, as of December 2018.

metropolis

Metropolis Healthcare on Tuesday raised ₹530 crore by selling shares to anchor investors ahead of its initial share-sale. The company allotted 60,23,293 equity shares to 26 anchor investors at ₹880 per unit. Among the anchor investors are Small Cap World Fund, Fundsmith Emerging Equities Trust, Sundaram Mutual Fund, UTI Equity Fund, Edelweiss Crossover Opportunities Fund.

List of anchor investors :

Download (PDF, 1.02MB)

 IPO Dates & Price Band:

  • IPO Open: 03-April-2019
  • IPO Close: 05-April-2019
  • IPO Size: Approx ₹1204 Crore
  • Face Value: ₹2 Per Equity Share
  • Price Band: ₹877 to ₹880 Per Share
  • Listing on: BSE & NSE
  • Retail Portion: 10%
  • QIB Portion: 75%
  • HNI Portion: 15%
  • Equity: 15,269,684 Shares

Market Lot:

  • Shares: Apply for 17 Shares (Minimum Lot Size)
  • Amount: ₹14,960

IPO Allotment & Listing:

  • Basis of Allotment: 10-April-2019
  • Refunds: 11-April-2019
  • Credit to demat accounts: 12-April-2019
  • Listing: 15-April-2019

Lead managers:

JM Financial, Credit Suisse, Goldman Sachs, HDFC Bank and Kotak Mahindra Capital are the lead managers to the offer.

Shareholder of the company:

shareholders

3 lakh shares are reserved for employees. One of the promoters, Sushil Kanubhai Shah, will offload 63 lakh shares, while investor CA Lotus Investments, part of Carlyle Group, will sell 74 lakh shares through the IPO.

Object of the Issue:

1) to achieve the benefits of listing the Equity Shares on the Stock Exchanges and

2) for the Offer for Sale.

Overview of Indian Healthcare Market:

The size of the Indian healthcare industry, in revenue terms, was USD 125 billion in the financial year 2015,which is estimated to have increased to USD 171 million by the financial year 2017. The healthcare industry is expected to grow at a CAGR of 16.9% from USD 125 billion in the financial year 2015 to USD 273 billion in the financial year 2020. India’s healthcare market is expected to be among the top three healthcare markets globally, in terms of incremental growth, by the financial year 2020.

Our Competitive Strengths

One of the leading diagnostics companies in India which is well positioned to leverage the expected growth in the Indian diagnostics industry.

Widespread operational network, young patient touch point network and asset light growth of service network

Comprehensive test menu with wide range of clinical laboratory tests and profiles

Strong and established brand with a focus on quality and customer service

Robust Information Technology Infrastructure with Focus on Improving Efficiency

Established track record of successful acquisition and integration in India and overseas

Experienced Senior Management Team and Qualified Operational Personnel

Our Strategy

Continue to Focus on Organic Growth Initiatives to Expand Our Reach

Continue Our Focus on Providing Quality Tests and Services

Focus on the Expansion of Our Service Network

Focus on Increasing our Business from Individual Patients

Pursue New Avenues of Growth

Focus on Consolidation Opportunities in a Largely Unorganized Diagnostic Sector

Financial:

From financial year 2016 to financial year 2018, revenue from operations grew from Rs 475.47 crore to Rs 643.57 crore, representing a CAGR of 16.3 percent and profit for the year grew from Rs 81.95 crore to Rs 109.75 crore, representing a CAGR of 15.7 percent.

financial details

3 lakh shares are reserved for employees. One of the promoters, Sushil Kanubhai Shah, will offload 63 lakh shares, while investor CA Lotus Investments, part of Carlyle Group, will sell 74 lakh shares through the IPO.

Object of the Issue:

1) to achieve the benefits of listing the Equity Shares on the Stock Exchanges and

2) for the Offer for Sale.

Overview of Indian Healthcare Market:

The size of the Indian healthcare industry, in revenue terms, was USD 125 billion in the financial year 2015,which is estimated to have increased to USD 171 million by the financial year 2017. The healthcare industry is expected to grow at a CAGR of 16.9% from USD 125 billion in the financial year 2015 to USD 273 billion in the financial year 2020. India’s healthcare market is expected to be among the top three healthcare markets globally, in terms of incremental growth, by the financial year 2020.

Our Competitive Strengths

One of the leading diagnostics companies in India which is well positioned to leverage the expected growth in the Indian diagnostics industry.

Widespread operational network, young patient touch point network and asset light growth of service network

Comprehensive test menu with wide range of clinical laboratory tests and profiles

Strong and established brand with a focus on quality and customer service

Robust Information Technology Infrastructure with Focus on Improving Efficiency

Established track record of successful acquisition and integration in India and overseas

Experienced Senior Management Team and Qualified Operational Personnel

Our Strategy

Continue to Focus on Organic Growth Initiatives to Expand Our Reach

Continue Our Focus on Providing Quality Tests and Services

Focus on the Expansion of Our Service Network

Focus on Increasing our Business from Individual Patients

Pursue New Avenues of Growth

Focus on Consolidation Opportunities in a Largely Unorganized Diagnostic Sector

Financial:

From financial year 2016 to financial year 2018, revenue from operations grew from Rs 475.47 crore to Rs 643.57 crore, representing a CAGR of 16.3 percent and profit for the year grew from Rs 81.95 crore to Rs 109.75 crore, representing a CAGR of 15.7 percent.

Peers:

Peers

Grey market premium:

Currently, Grey market premium is Rs. 60/- to 65/- and Kostak is Rs. 200/- to 250/-

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.

 

Jana Small Finance Bank Offers Upto 9.6% Interest rate : Review and MF holding

Jana Small Finance Bank (erstwhile Janalakshmi Financial Services Limited) commenced operations as a non-banking finance company (NBFC) on March 4, 2008, and was later classified as a non-banking finance company-microfinance institution (NBFC-MFI). The bank received a licence to set up a small finance bank on April 28, 2017 and commenced banking operations on March 28, 2018. Jana Holdings Limited (JHL), a non-banking finance company-non-operative financial holding company (NBFC-NOFHC), holds a 45.37% stake in JSFB as on February 28, 2019.

fixedeposits

JSFB has a diversified presence across 18 states and 2 union territories in India, with a portfolio of Rs.7,164 crore as on November 30, 2018. The share of the top 3 states of Tamil Nadu, Karnataka and Maharashtra was about 51% as on November 30, 2018. The bank raised Rs. 1,636 crore equity during FY2018 and Rs.601 crore during 11M FY2019 from existing and new investors.

For H1 FY2019, the bank has reported a net loss of Rs.1,291.8 crore on a managed portfolio of Rs.6,941 crore as on September 30, 2018. In FY2018, JSFB reported a net loss of Rs. 2,503.8 crore on a total managed asset base of Rs. 10,022.4 crore compared to a net profit of Rs. 170.1 crore on a total managed assets base of Rs. 15,730 crore during FY2017.

FD RATES

Credit challenges

Weak recoveries from harder overdue buckets continue to weigh down on asset quality – JSFB’s asset quality has remained weak with 90+ dpd3 at 31.7% (Rs.2,336.4 crore excluding write-off and Rs.3,264.4 crore including write-off) as on December 31, 2018 compared to Rs. 3,270.6 crore4 in March 2018 (Rs. 1,990 crores in March 2017) because of modest collections from the overdue buckets and limited impact of the various recovery programmes.

key financial

Outlook: Negative

The Negative outlook factors in the expected weakness in JSFB’ earnings and capital profile going forward. The ratings would be downgraded further if the bank’s recoveries and disbursements remain subdued thereby prolonging any meaningful improvement in its earnings and capitalisation, or if its liquidity profile deteriorates because of the bank’s inability to mobilise adequate external funding or deposits. The outlook would be revised to stable in case of a steady revival in its profitability indicators and improvement in its capital structure.

rating history

ratingMutual fund Holding of JSFB :

  1. DSP Credit risk Fund 08/07/2019
  2. UTI Unit link Insurance plan  26/04/2019
  3. Kotak Credit Risk  08/04/2019
  4. Kotak Medium Term   08/04/2019

Should you invest?

Like any other commercial bank, deposit of up to ₹ 1 lakh is insured by the Deposit Insurance and Credit Guarantee Corp. (DICGC), a subsidiary of RBI. DICGC has a list of insured banks on its website, and as of know, seven of the 10 small finance banks are listed on its website.

“The credit rating practices and mechanism of small finance banks might not be at the same level as that of an older public or private sector bank. So, I would be circumspect about these new age small banks as compared to the older banks, and hence would classify them as somewhat risky.

 

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.

 

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

Many mutual fund investors are worried about their investments in debt mutual funds as the interest rate and credit risk worries gather momentum, especially those practising DIY ( Do-It-Yourself ) investing.

“New investors are trying to enter the debt/balance segment and investors who manage their portfolios by themselves have started wondering how they can safeguard their debt/balance fund investments. “There are no rules to eliminate the risk, but investors can try to minimise risk.” 

credit risk 1

Know the categories well :

We believe that if you are a DIY ( Do-It-Yourself ) investor, the least you should do is keep a check on where your schemes are investing. Fund houses send a factsheet on your registered e-mail id every month. “You should see the changes in the factsheet. Which instruments have been added to the scheme and which have been dropped? Educate yourself if you are doing it yourself.”

Quality of the portfolio :

Higher-rated instruments have lower chances of defaults. Check if your scheme portfolio is betting on lower-rated securities to earn better returns. “The allocation changes and the ratings of the instruments added in the portfolio should be monitored. AAA-rated securities have a rare chance of defaulting. An IL&FS type default is very rare in the market.”

Duration of the instruments :

Another risk that you want to refrain from taking is the interest rate risk. When the interest rates go up, the longer duration bond funds are hit the most and vice-versa. Mutual fund investors who do not want to take calls on the interest rate movements can opt for dynamic bond funds. “Duration funds or bond funds are susceptible to interest rate changes. Investors who do not want to take such risk should bet on schemes that hold lower maturity papers like short and ultra-short duration funds.”

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.

 

Provident funds investment in IL&FS bonds have no government guarantee: FinMin

The provident and pension fund trusts that invested in the IL&FS bonds now fear a loss of money as the debt-ridden company`s bonds are unsecured debt, and the Finance Ministry says superannuated bonds do not carry any government guarantee and all such instruments have to face all market-related risks.

“Since these are investments in bonds, the government does not ensure any guarantee on them as such and if these are invested in stock markets, they carry the market risks as applicable. It is between the bond issuer and bondholders…,” the Finance Ministry said in response to IANS queries.

IIII

Thousands of crores of money of more than 15 lakh employees of both public and private sector companies have exposure to IL&FS bonds.

However, queries sent to the EPFO Commissioner and Labour Minister Santosh Gangwar remained unanswered.

Over 50 funds that manage retirement benefits of over 15 lakh employees have exposure to IL&FS. PF trusts of state electricity boards, public sector undertakings (PSUs) and banks are among them. The provident and pension fund trusts have filed intervening applications in the National Company Law Appellate Tribunal (NCLAT) stating that they stand to lose all the money since the bonds are under unsecured debt.

Usually, retirement funds have a low-risk appetite and invest in “AAA” rated bonds (which IL&FS bonds used to be once upon a time) and get assured returns with low-interest rates.

The worries of pension and provident fund trusts come from the classification of IL&FS profiling its companies as to which can meet the dues obligations. Many important trust managing funds of PSUs like MMTC, IOC, Hudco, SBI and IDBI are among those filing petitions. From the private sector, HUL and Asian Paints are among the petitioners.

IL&FS is currently under resolution process at the National Company Law Tribunal (NCLT). The process will decide under Section 53 of the IBC the order of priority for distribution of proceeds of the process.

The beleaguered company has informed the NCLT that of the 302 entities in the group, 169 are Indian companies, out of which only 22 are emerging as those which can meet all obligations (green), while 10 firms can pay to only secured creditors (Amber). There are 38 companies of IL&FS (red) which cannot meet any obligations of payment, and 120 entities are still being assessed.

These PF and provident funds trusts are worried that if payment is limited to secured creditors, then only financial creditors like banks will receive the dues while unsecured bond-holders will get any payments.

IL&FS bonds attracted investments by PF trusts as it had the shareholding of SBI and LIC giving its bonds the comfort factor.

( This story is auto-generated from a syndicated feed.)