10.69% SREI Equipment Finance NCD Aug 2019 Review

SREI Equipment Finance August 2019 NCD Issue-minSREI Equipment Finance NCD Aug 2019 Review


SREI Equipment Finance Limited is coming up with its Tranche-I NCD Issue that would open for subscription on 16th August, 2019. SREI Equipment Finance NCD interest rates are up to 10.65% where yield works out to be 10.69%. They are offering secured NCDs now in Tranche-I. When interest rates are low, high interest rate NCDs from SREI Equipment Finance Limited would attract investors who want to invest for short term to medium term. Should you invest in SREI Equipment Finance NCD in Aug/Sep 2019? What are the risk factors one should consider before investing in such high risk NCDs from SREI Equipment Finance Limited? Currently Tata Capital Financial Services NCDs are open that offers upto 8.85%, hence one should compare before taking investment decision.

About SREI Equipment Finance Limited


They are one of the leading financier in the Construction, Mining and allied Equipment sector in India. This sector primarily consists of equipment used for earth moving and mining, concreting, road building, material handling, material processing and allied activities. Their product offerings include loans, for new and used equipment, and leases.

In the 30 years strong period of Srei Group’s operations, they have demonstrated clear market differentiation through its holistic approach to providing equipment financing solutions. This approach covers the value chain in the equipment life cycle by providing financing to and sustaining continuous engagement with customers across equipment procurement, deployment, maintenance and exit stages. The equipment-centric services they provide include preferred financing schemes offered by them in conjunction with Original Equipment Manufacturers, equipment deployment assistance during project downtime, spare parts financing, exchange program financing and used equipment financing.

Features of SREI Equipment Finance NCD Aug 2019


Issue start date: 19-Aug-2019

Issue end date: 28-Sep-2019

NCD’s are available in 10 options. It offers NCD for 13 months, 3 years and 5 years tenure.

Coupon interest rates are between 9.88% to 10.65% per annum. Yield ranges between 10.01% to 10.69%.

All Category of Investors in the proposed Issue who are also holders of NCD previously issued by Company and in past public issues of NCDs are equity shareholder of Srei Infrastructure Finance Limited or senior citizens or  Existing Employees of Srei Group as the case may be, on the Deemed Date of Allotment and applying in Series II, Series III, Series V, Series VI, Series VIII and/or Series IX NCDs shall be eligible for additional incentive e of 0.25% p.a. provided the NCDs issued under the proposed Issue are held by the investors on the relevant Record Date applicable for payment of respective coupons in respect Series II, Series III, Series V, Series VI, Series VIII and/or Series IX NCDs.

They are offering Secured NCDs now.

Interest payable monthly, yearly and on maturity based on the NCD option chosen.

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

NRI’s cannot apply to this NCD subscription.

The base issue size is Rs 100 Crores with an option to retain over-subscription up to Rs 500 Crores.

Karvy Investor Services and SMC Capital are the Lead managers to the Tranche I issue.

Tranche-I NCD details of SREI Equipment Finance can be downloaded at this link.

Interest rates of SREI Equipment Finance NCD Tranche I – August 2019


Here are the interest rates along with Yield details of these NCDs.

SREI Equipment Finance NCD August 2019 Issue - Interest Rates-min

How the NCD issue is allocated to various investors?


1) Institutional Portion – 20% of the issue

2) Non Institutional Portion – 20% of the issue

3) Retail – 60% of the issue

What are the credit ratings for these NCDs?


The NCDs have been rated by BWR as BWR A+ in Sep-2019. These were downgraded from AA to A+ between Au 2019 to Sep 2019.

The NCDs have been rated by ACUTE as ACUTE AA-.

As per prospectus, it indicates that these ratings are considered to have a high degree of safety regarding timely servicing of financial obligations and carry very low credit risk.

When SREI Equipment Finance NCD Aug 2019 is proposed to be listed on stock exchanges?


The NCDs are proposed to be listed on BSE. The NCDs shall be listed within 6 Working Days from the date of the Issue Closure.

How is the company financial performance?


Here are some financials:

Its revenues grew from Rs 3,473.4 Crores in FY2018 to Rs 4,402.8 Crores in FY2019.

Its profits improved from Rs 295.8 Crores in FY2018 to Rs 306.3 Crores in FY2019.

SREI Equipment Finance NCD Aug 2019 – How the returns taxed?


Since you need to apply through the demat form only, there would not be any TDS deduction on the interest paid on these NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the NCD interest as income in their income tax returns and pay income tax based on the individual tax bracket.

Why to invest?


1) The company is earning consistent and improving margins. This indicates that this company has ability to consistently pay the interest rates for its creditors or NCD holders in the future.

2) These NCDs offer attractive interest rates where you can get yield up to 10.69% per annum.

3) It issues Secured NCDs. In case of any non performance of the company and the company gets closed for some reason, Secured 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 a preference that is given to NCD investors and there is no guarantee that entire amount would be paid-back in such cases.

Why not to invest in SREI Equipment Finance NCD Aug 2019?


1) There are outstanding material legal proceedings involving company, Promoter, Directors and their Group Companies. Any adverse outcome in such legal proceedings may affect their business, results of operations and financial condition.

2) As an NBFC, the risk of default or late or non-payment by borrowers and other counter parties may materially and adversely affect their asset quality and profitability. Any such defaults and late or non-payments would result in provisions or write-offs in their financial statements which may materially and adversely affect their asset quality, cash flows and profitability.

3) As an NBFC, non-compliance with the RBI’s observations made during its period inspections could expose us to penalties and restrictions which could have a material and adverse effect on them.

4) They are currently in breach of some financial conditions under certain loan agreements that they are a party to with respect to maintenance of certain financial ratios which have arisen on a change in accounting standards applicable to the company. For such non-compliance with the covenants contained in such loan agreements, including obtaining the relevant consents from their lenders for the Issue, their lenders could accelerate their respective repayment schedules, and enforce their respective security interests, which would lead to an adverse effect on their business, results of operations and financial condition.

5) Their business focuses on the infrastructure equipment financing sector, with a particular focus on financing of CME, and any adverse economic or regulatory developments in the infrastructure, construction and allied sector, may adversely affect their results of operations. If loans made to borrowers in these sectors become non-performing or if there are defaults on such loans, their business, cash flows, financial condition and results of operations could be materially and adversely affected.

6) They are exposed to operational and credit risks which may result in NPAs, and may be unable to control or reduce the level of NPAs in their portfolio. If they are unable to manage the level of NPAs or provisioning requirement as per regulatory requirements, their cash flows, financial position and results of operations may suffer.

7) As on March 31, 2019, their top 20 borrowers represented 11.93% of their total Gross Earning Assets under IndAS. Their inability to maintain relationships with these customers or any payment default by them or credit losses of these customers could materially and adversely affect their business, future financial performance and results of operations.

8) Their business requires funds regularly, and any disruption in their funding sources would have a material adverse effect on their business and cash flows.

9) Other Internal and external factors can be read at the risk factors indicated in the NCD prospectus.

How to apply this SREI Equipment Finance NCD in August 2019?


SREI Equipment Finance NCD Issue is available in only in demat form. You can apply online or through any of the broker website where you are maintaining a demat account. For more information on this you can refer prospectus.

Should you invest in SREI Equipment Finance NCD in Aug/Sep 2019?


SREI Equipment Finance Limited NCD’s of Tranche-I issue in 2019 offers high interest rates. Banks are reducing the interest rates month on month and the interest rates are between 6% to 8% per annum. Such interest rates are low compared to interest rates offered by these NCDs.

However, low credit rating of these NCDs is considered as HIGH RISK. In future, there are greater chances that such companies default in payment of interest or repayment of capital itself. Currently we are already seeing NBFC crisis. Considering all these factors, investors should stay away from such HIGH RISK NCDs as of now.

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Suresh

SREI Equipment Finance NCD Aug 2019 Review

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