10.75% Magma Fincorp NCD April 2019 – Tranche-I – Who can invest?
Magma Fincorp NCD April 2019 Tranche-I – Review
There is a flood of NCD’s now in March and April 2019. There are more than 5 companies lined up for NCDs now in April-2019 to pull thousands of Crores. Magma Fincorp NCD for April 2019 would open for subscription on 8th April, 2019. Magma Fincorp is a non-deposit taking housing finance company and were registered with the National Housing Bank. It is issuing secured NCD’s. The yield is as high as 10.75% per annum and attracting investors now. It is offering NCDs of 3 years, 5 years and 10 year tenure. Investors are still scared to invest in NCDs as though they offer higher interest or yield, these are still high risk with recent scams. Should you invest in Magma Fincorp NCD of April 2019? What are the hidden factors an investor should consider before investing Magma Fincorp NCD of 2019?
About Magma Fincorp Limited
The company is registered as a systemically important non-deposit accepting non-banking financial company (NBFC) with the Reserve Bank of India under Section 45-IA of the Reserve Bank of India Act, 1934.
Magma Fincorp NCD April 2019 Tranche-I Issue details
Magma Fincorp is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 200 Crores with an option to retain another Rs 300 Crores over subscription totaling to Rs 500 Crores. It comes with 7 different options, which contains 3 years, 5 years and 10 years tenure NCDs.
About Magma Fincorp April 2019 Secured NCD
They are offering secured NCD’s now in April 2019. The principal amount of the NCDs to be issued in terms of the Draft Shelf Prospectus, this Shelf Prospectus and respective Tranche Prospectus together with all interest due on the NCDs in respect thereof shall be secured by way of an exclusive charge on identified receivables of Company and a pari passu charge in favour of the Debenture Trustee on an identified immovable property of Company, as may be decided mutually by Company and/or the Debenture Trustee at the time of filing of relevant Tranche Prospectus. Company will create appropriate security in favour of the Debenture Trustee for the NCD Holders on the assets adequate to ensure 100% asset cover for the NCDs.
Features of Magma Fincorp NCD of April 2019
Issue start date: 8-April-2019
Issue end date: 8-May-2019
NCD’s are available in 7 different options.
The interest of these NCDs is payable monthly and annually.
The face value of the NCD bond is Rs 1,000.
Minimum investment is for 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 NCD bonds would be listed on BSE/NSE. Hence, these are liquid investments.
Non-resident Indians (NRI’s) cannot invest in these NCD’s.
BWR Ratings rated them as BWR AA Outlook Stable and ACUITE as ACUITE AA/Stable. The rating of the NCDs by Brickworks and Acuité indicate that instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.
Edelweiss Financial Services, AK Capital Services and Catalyst services are the lead managers for this issue.
Here are the interest rates on the April 2019 NCD’s of Magma Fincorp
What is the issue break-up?
Institutional Portion – 20%
Non Institutional Portion – 20%
High Net Worth Individuals – 30%
Retail Investors – 30%
How is the company doing in terms of Financials?
Here are the financials:
1) Its revenues are at Rs 2,026 Crores in FY2017 to Rs 2,037 Crores in FY2018.
2) Its profits are at Rs 6.09 Crores in FY2017 to Rs 202.4 Crores in FY2018.
Why to invest in Magma Fincorp Ltd NCD?
1) Attractive interest rates where one can get up to 10.75% yield.
2) It is issuing secured NCDs which are safe to invest compared to other unsecured NCDs.
3) Good credit rating from BWR Ratings and Acuite Ratings as AA/Stable.
Why not to invest in Magma Fincorp April 2019 Tranche-I NCD?
1) Its revenues are stagnant. Its profits declined in FY17 significantly, however, recovered in FY18. In the future if there are issues with company performance and its profits are reduced, there could be a delay in interest payment or repayment of capital of NCDs. One should invest in companies that are growing and providing consistent profits.
2) Any disruption in their sources of funding could adversely affect their liquidity and financial condition.
3) As an NBFC, non-compliance with the RBI’s observations made during its periodic inspections could expose them to penalties and restrictions which could have a material adverse effect on them.
4) Any adverse developments in the asset backed financing industry could adversely affect their business and results of operations.
5) Their business operations involve transactions with relatively high risk borrowers. Any default from their customers could adversely affect their business, results of operations and financial condition.
5) If they are unable to control the level of NPAs in their portfolio effectively or if they are unable to improve their provisioning coverage as a percentage of gross NPAs, their financial condition and results of operations could be adversely affected.
6) Their inability to recover the full value of collateral or amounts outstanding under defaulted loans in a timely manner or at all could adversely affect their results of operations.
7) They are affected by volatility in interest rates for both their lending and treasury operations, which could cause their net interest income to decline and adversely affect their return on assets and profitability.
9) A significant portion of their collections from customers is in cash, exposing us to certain operational risks.
10) You can refer all risk factors in the Final prospectus of the company.
How to apply Magma Fincorp NCD Issue of 2019?
You can apply these NCDs in demat form only. If you have demat account, you can login to your account and go to IPO/NFO/NCD section and apply for the same. The process of applying NCD would be through ABSA (Your amount would be blocked initially and upon allotment, your amount would be deducted and NCD unit allotment would be done, else your amount would be unblocked) You can reach out to any of the lead managers websites to know more details on how to apply them.
How Magma Fincorp April 2019 NCD interest is taxed?
Since you need to apply through the demat form only, there would not be any tax on interest received through these NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the interest in their income tax returns and pay income tax based on the individual tax bracket.
When this Magma Fincorp NCD of 2019 would get listed on BSE/NSE?
These Magma Fincorp Limited NCDs of April, 2019 would get listed after 6 working days from the date of closure. If NCD subscription closes as per the closure date i.e. 8th May, 2019, it would get listed after 6 working days i.e. 17th May, 2019. If it is subscribed earlier and subscription closes, it would get listed after 6 days from such early closure date.
Should you invest in Magma Fincorp NCD of April 2019 – Tranche-I?
I would not change my stand. Whether you need to invest or not depends on what you think and what is your risk appetite.
1) Though Magma Fincorp is offering secured NCDs, we are seeing that NBFC companies are delaying the interest payment due to the liquidity crunch in the company. Do you want to invest in such high risk NCD’s then? You can invest in good midcap funds or small cap mutual funds which would give higher returns with such high risk what you are taking.
2) These NCD’s are for 3 years, 5 years and 10 year tenure. Do you want to park your money in high risk NCD for 5 to 10 years? We do not know how the company would perform beyond 3-5 years, hence you should always invest in short term NCDs. You can look 3 years or maximum of 5 years tenure NCDs as these are for short term to medium term and they are secured in nature.
3) Magma Fincorp NCD offers yield up to 10.75% interest per annum, however is high risk. If you are a high risk taker, investing in some of the diversified portfolio of large cap, diversified and balanced mutual funds can fetch you around 15% annualised returns.
Conclusion: Magma Fincorp NCDs offers high interest rates compared to bank FDs, hence investors feel this could be good source to have fixed income. Secured NCDs are somewhat better compared to unsecured. If you are a high risk taker and willing to invest in such companies even after recent financial crunch among NBFC companies and Scams, you can consider investing in Secured NCDs for 3 years or maximum of 5 years tenure. However, you should be willing to take the risks indicated above.
Readers, do you feel these NCDs are worth investing?
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Magma Fincorp NCD April 2019 Review