10.25% JM Financial NCD Issue Nov 2018 – Should you invest?

JM Financial Credit Solutions NCD Issue Nov 2018JM Financial NCD Issue Nov 2018 Review


After 6 months, JM Financial is again coming with NCDs now. JM Financial Credit Solutions NCD Nov 2018 Public Issue would open for subscription on 20th November, 2018. JM Financial Credit Solutions NCD offers up to 10.25% interest rates. These are Secured NCDs. When interest rates are low, high interest rate NCDs from JM Financial Credit Solutions Ltd would definitely attract investors who want to invest in the short term to medium term. However, after the recent IL&FS Crisis, investors are little worried to invest in such high risk NCDs. Should you invest in JM Financial Credit Solutions NCD Issue Nov/Dec 2018 Tranche II? What are the risk factors one should consider before investing in such NCDs?

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About JM Financial Credit Solutions Limited (JMFCSL)


JM Financial Credit Solutions Limited (JMFCSL) is a non-deposit accepting systemically important non-banking finance company (NBFC) registered with the Reserve Bank of India (RBI). The company was jointly promoted by the JM Financial Group, a leading diversified financial services provider in the country, and INH Mauritius 1 Fund, a global fund led by Mr. Vikram Pandit, ex-CEO of Citigroup.

Features of JM Financial Credit Solutions NCD Issue Nov 2018 – Tranche II


Issue start date: 20-Nov-2018

Issue end date: 20-Dec-2018

NCD’s are available in 6 options. It offers NCD for 42 months, 60 months and 120 months.

These are secured NCDs.

Interest payable monthly/yearly/on maturity depending on the option chosen by the investor.

The face value of the NCD bond is Rs 1000.

Minimum investment is for the 10 bonds. Means, you need to invest for a minimum of Rs 10,000. Beyond this you can invest in multiples of 1 bond.

These Tranche II NCD bonds would be listed on BSE. Hence, these are liquid investments.

NRI’s cannot apply to this NCD subscription.

These NCD’s are rated as AA/Stable by IND Rating and ICRA. The rating of the NCDs by ICRA and India Ratings indicates a high degree of safety regarding timely servicing of financial obligations

The trustee would be IDBI Trustee Services Limited.

Tranche-I Prospectus of JM Financial Credit Solutions NCD Issue Nov 2018  can be downloaded this link.

Interest rates of JM Financial Credit Solutions NCD Issue Nov 2018 – Tranche II


JM Financial Credit Solutions NCD Issue Nov 2018 Interest Rates

When JM Financial Credit Solutions NCDs of Nov 2018 are proposed to be listed on stock exchanges?


The NCDs are proposed to be listed on BSE. The NCDs shall be listed within 12 Working Days from the date of the Tranche 1 Issue Closure. Its closure date is 20-Dec-18 or earlier (NCDs are allotted first come first serve basis).

How is the company doing in terms of Revenues and Profits?


Its Revenues are at Rs 2,267 Crores for FY2017 Vs Rs 3,131 Crores for FY2018.

Its Profits are at Rs 470 Crores for FY2017 Vs Rs 631 Crores for FY2018.

What is the size of JM Financial Credit Solutions NCD Issue Nov 2018?


The initial size of the Tranche II – NCD issue is Rs 250 Crores with an option to retain upto Rs 750 Crores totaling to Rs 1,000 Crores.

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What are the objects of this NCD Offer?


Here are the objects of the NCD Public Issue.

1) For the purpose of onward lending, financing, and for repayment /prepayment of interest and principal of existing borrowings of the Company.

2) For General Corporate purpose.

Who can apply for these NCDs?


The following categories of persons are eligible to apply in the Tranche II Issue.

Category I – Institutional Investors

Category II – Non Institutional Investors

Category III – High Net Worth Individuals (HNI)

Category IV – Retail Investors

NRIs are not eligible to apply these NCDs.

What is the basis of allotment / allocation ratio JM Financial Credit Solutions NCD Issue Nov 2018?


Institutional Portion – 10%

Non Institutional Investors Portion – 10%

High Net Worth Individuals (HNI) – 40%

Retail Investors – 40%

What is the record date for payment of interest / repayment of principal on these NCDs?


The Record Date for the payment of interest in connection with the Secured NCDs or repayment of principal in connection therewith shall be 15 days prior to the date on which interest is due and payable, and/or the date of redemption. Provided that trading in the Secured NCDs shall remain suspended between the aforementioned Record Date in connection with redemption of Secured NCDs and the date of redemption or as prescribed by the Stock Exchange, as the case may be. In case Record Date falls on a day when Stock Exchange is having a trading holiday, the immediate subsequent trading day or a date notified by the Company to the Stock Exchanges, will be deemed as the Record Date.

What are the taxation rules for these NCDs?


Here are the taxation guidelines for the NCDs.

1) These NCDs would provide fixed income per month or per annum or on maturity. Since these are issued in demat form, the company would not deduct any income tax on the interest on these NCDs. However, it is the duty of the individual to declare this income and pay income tax as per their income tax slab. E.g. if you are falling under 20% tax bracket and received Rs 10,000 as income, you need to pay Rs 2,000 as income tax in that year.  

2) If you are selling these NCDs on stock exchange and there is capital gains, necessary tax is applicable

a) If sold < 1 year, Short term capital gain tax is applicable. Income tax need to be paid based on income tax slab on such gains.

b) If sold > 1 year, Long term capital gains are applicable. Long term capital gain tax is 20% indexation or 10% without indexation.

Why to invest?


1) The company is earning consistent revenues and margins in the last few years.

2) These NCDs offer attractive interest rates where you can get yield up to 10.25% per annum.

3) These are secured NCDs. In case of any non performance of the company and the company gets closed for some reason, NCD investors would get preference in repayment of capital along with interest. Hence it is safe to invest in such secured NCD options. However, it is only preference is given to NCD investors and no guarantee that entire amount would be paid-back in such cases.

Why not to invest in JM Financial Credit Solutions NCD Issue Nov 2018?


1) Its Promoter is involved in certain tax proceedings, that if determined against the Promoter, could have a material adverse effect on its business and financials.

2) Any volatility in interest rates could adversely affect its net interest margin, financial performance and results of operations.

3) If they are unable to continue to benefit from its relationship with its Promoter and the “JM Financial” brand, its business and results of operations may be adversely affected.

4) They operate in an increasingly competitive financial services industry, which creates significant pricing pressures and may adversely affect its net interest margins, income and market share. Further, its growth depends on its ability to compete effectively in this competitive environment.

5) They are a non-deposit taking systematically important non-banking finance company, i.e. NBFC-ND-SI and therefore they are subject to supervision and regulation by the RBI, as an NBFC-ND-SI, and other regulatory authorities. They operate in highly regulated business and are subject to various laws and regulations and regulatory investigations. Changes in the RBI’s regulations and other regulations, and the regulation governing its Company or the industry in which Company operates may have a material adverse effect on its business, financial condition or results of operation.

6) Its ability to borrow from various banks may be restricted on account of guidelines issued by the RBI imposing restrictions on banks in relation to their exposure to NBFCs which could have an impact on its business and could affect its growth, margins and business operations.

7) Non-compliance with RBI inspection/ observations may have a material adverse effect on its business, financial condition or results of operation. Its overseas operations are also subject to inspections from regulators in such jurisdictions. Any adverse observations from such regulators could have a material adverse effect on its business, financial condition or results of operation.

8) Its loan portfolio is significantly exposed to real estate which may lead to an increase in its impairment losses and adversely affect its financial condition and results of operations.

9) They are significantly dependent on and exposed to risks emanating from economic, regulatory and other changes in the Mumbai Metropolitan Region, which if they are unable to manage successfully may have an adverse effect on its revenues, cash flows, profits and financial condition.

10) Company may experience difficulties in expanding its business into new regions and markets in India and introducing its complete range of products in each of its branches.

11) The real estate industry in India has witnessed significant downturns in the past, and any significant downturn in the future or any adverse developments in the real estate sector could adversely affect its business, financial condition and results of operations.

12) Any downgrade in credit ratings could increase interest rates for refinancing outstanding debt, which would increase financing costs, and adversely affect future issuances of debt and the ability to borrow on a competitive basis, which could adversely affect its business, financial condition, results of operations and cash flows.

13) Company business requires substantial funds, and any disruption in funding sources or an increase in the average cost of borrowings could have a material adverse effect on its liquidity and financial condition.

14) Other Internal and external factors can be read at the risk factors of the NCD prospectus.

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How to apply these JM Financial Credit Solutions NCD Issue Nov 2018 – Tranche II?


JM Financial Credit Solutions NCD Issue of Nov/Dec Tranche-II of 2018 is available only in demat form. You can apply online with any of the broker website where you are maintaining a demat account. For more information on  this you can visit JM Financial or Edelweiss website.

Conclusion: Though JM Financial Credit Solutions Limited NCD’s are secured in nature, these are high risk NCDs. Considering recent IL&FS Crisis, it is very high risk to invest in such NCDs. If you are very high risk investor and willing to take risk post IL&FS crisis too, you can invest in these NCDs. Alternatively, you can invest in some of the good long term debt mutual funds that can fetch you similar returns. 

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Suresh

JM Financial Credit Solutions NCD Issue Nov 2018 – Tranche II

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