10.75% Kosamattam Finance NCD – Jul 2019 – Should you Avoid?

Kosamattam Finance NCD July 2019 ReviewKosamattam Finance NCD – Jul 2019 Review


After 6 months, Kosamattam Finance is again coming up with NCD subscription now. Kosamattam Finance NCD opened for subscription on 16th July, 2019. These NCDs offer interest rates up to 10.25% and provides high yield up to 10.75%. This Non Banking Finance Company is operating from Kerala and has a presence across South India. In these NCDs, your investment would get doubled in 84 months compared to Banks where your money would get doubled in more than 100 months. What are the risk factors you should consider before investing in such NCD’s? Should you invest in Kosamattam Finance NCD of July 2019?

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About Kosamattam Finance Limited


They are a systemically important non-deposit taking NBFC primarily engaged in the Gold Loan business, lending money against the pledge of household Jewellery in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry.

Features of Kosamattam Finance NCD – Jul 2019


Kosamattam Finance is offering Secured, Redeemable Non Convertible Debentures as well as unsecured NCDs now in July, 2019. Here are the features of these NCDs.

Start date: 16-July 2019

End date: 14-August-2019

It offers secured and unsecured NCDs.

These NCD’s have monthly and cumulative interest payment options.

It offers both secured NCD’s for 400 days, 24 months, 48 months, 60 months and for 84 months tenure.

Bond face value 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. Hence, these are liquid investments (provided the buyer is available on that date when you sell such NCD’s).

NCD’s can be invested through Demat account only.

Non-resident Indians (NRI’s) cannot invest in these NCD’s.

The issue size is Rs 150 Crores with an option to retain another Rs 150 Crores aggregating to Rs 300 Crores.

Karvy Investor Services and SMC Capital are the Book Running lead Manager for this issue.

You can download the prospectus of Kosamattam Finance July 2019 NCD here

What are Interest Rates offered in Kosamattam Finance July 2019 NCDs?


Kosamattam Finance NCD July 2019 - Interest Rate Chart

What are the credit ratings for these NCDs?


These NCDs have been rated as IND BBB Outlook Stable by India Ratings. The rating of these NCDs from India Ratings indicates that instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.

Kosamattam Finance NCD – Jul/August 2019 – How the returns taxed?


For investors who are applying through demat account, there would not be TDS deduction.

Income tax on interest would be based on individual tax slab. Means, irrespective of whether company deducts TDS or not, you should show the interest income on your income tax return and pay necessary income tax.

How the company is doing in terms of Financials?


It earned revenues of Rs 434 Crores for FY18 and Rs 468 Crores for FY19.

Its profits are Rs 26.7 Crores for FY18 and Rs 30.4 Crores for FY19.

Net Non Performing Assets (NPA) are at 0.59% in FY18 and 1.28% in FY18 which is high in the last 5 years.

How ranking of NCD’s done?


The NCDs would constitute secured obligations of the Company and shall rank pari passu with the Existing Secured Creditors on all movable assets, including book debts and receivables, cash and bank balances, loans and advances both present and future of the Company equal to the value 1 time of the debentures outstanding plus interest accrued thereon and first ranking pari passu charge on the immovable property situated at Nagappattinam Dist. Kelvelur Taluk, Velankanni Village, Tamil Nadu. The NCDs proposed to be issued under the Issue and all earlier issues of debentures outstanding in the books of the Company having corresponding assets as security, shall rank pari passu without preference of one over the other except that priority for payment shall be as per applicable date of redemption. The company confirms that all permissions and/or consents for creation of a pari passu charge on the current assets, book debts, loans and advances, and receivables, both present and future as stated above, have been obtained from all relevant creditors, lenders and debenture trustees of the Company, who have an existing charge over the above-mentioned assets.

What are the objects of the NCD issue?


Here are the objects of the offer.

1) For the purpose of onward lending

2) Repayment of interest and principal on existing loans;

3) General Corporate Purposes;

Why to invest?


1) It offers secured and unsecured NCDs. Secured NCD’s are secured by movable assets, including book debts, receivables, etc. Means in case company gets windup due to bad performance of the company, investors of NCD would get preference in re-payment of the principal. However, there could be delays. Hence it is relatively safe to invest in such secured NCD’s. Investors can stay away from unsecured NCDs.

2) Attractive yield up to 10.75%.

3) The company have good growth in interest income in the last few years.

Why not to invest?


1) It offers unsecured NCDs which are very, very high risk. If the company goes bankrupt for some reason, investors of unsecured NCDs would be given preference like any other creditor and would be given normal  preference in repayment of capital or interest of the company.

2) India Rating agency has rated these bonds as IND BBB Outlook Stable.  The rating of NCDs by India Ratings indicates that instruments with this rating are considered to have a moderate degree of safety regarding timely servicing of financial obligations. Such poor credit rating NCD’s are high risk.

3) Restrictive or penal order may be passed against us by the RBI in on-going and / or future proceedings that could hamper its operations or services, or a part thereof, or levy penalties in connection therewith, which may in turn adversely affect its operations and profitability.

4) They have been subject to an inspection by the RBI and any adverse action taken could affect its business and operations.

5) They are subject to inspections by CDSL in its capacity as a depository participant and any adverse action taken by CDSL could affect its business and operations.

6) Its ability to access capital also depends on its credit ratings. Any downgrade in its credit ratings would increase borrowing costs and constrain its access to capital and lending markets and, thus, would negatively affect its net interest margin and its business.

7) Company, two of its Promoter Directors and one of its Group Companies are subject to certain legal proceedings and any adverse decision in such proceedings may have a material adverse effect on its business, financial condition and results of operations.

8) One of its Group Companies is enabled by its memorandum of association to undertake activities similar to the activities conducted by its Company, which may be a potential sort of conflict of interest for them and which may have an adverse effect on its operations.

9) The company was unable to trace certain secretarial records, including records pertaining to the allotment of Equity Shares acquired by its past shareholders prior to December 2004.

10) A major part of its branch network is concentrated in southern India and they derive the majority of its revenue from southern India. Any breakdown of services in these areas could have a material and adverse effect on its results of operations and financial conditions.

11) Its business is capital intensive and any disruption or restrictions on raising financial resources would have a material adverse effect on its liquidity and financial condition.

12) They have had negative net cash flows from its operating, investing and financing activities in the recent fiscal years. Any negative cash flows in the future may adversely affect its results of operations and financial condition.

13) Complete risk factors of Kosamattam Finance NCD of July 2019  can be read at risk factors indicated in the prospectus.

How to invest?


You can login to your demat account and apply under IPO/NCD section. These NCDs would get listed within 6 working days from the closure of the NCD subscription.

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Should you invest in Kosamattam Finance NCD – Jul / August 2019?


Here are my few thoughts.

Company issues both secured and unsecured NCDs. First of all unsecured NCDs poses a high risk and can be ignored. Even if you would like to invest in secured NCDs, one should consider a few factors.  We are seeing NBFC companies delaying re-payments to the existing NCD holders. Considering poor credit rating and NBFC crisis, do you still want to go ahead investing in these NCDs?. I would advise investors to stay away for such low credit rating NCDs as of now. You can invest in some of the good large cap funds or Top Performing Multicap Mutual Funds that can provide high returns with similar risk though not guaranteed

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Suresh

Kosamattam Finance NCD – Jul 2019 – Should you invest

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