10.75% Kosamattam Finance NCD – Nov 2019 – Should you invest?

Kosamattam Finance NCD Nov 2019 ReviewKosamattam Finance NCD – Nov 2019 Review


After 4 months, Kosamattam Finance is again coming up with NCD subscription now. Kosamattam Finance NCD opened for subscription on 11th Nov, 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 Nov 2019?

Also Read: Best Bank FD Rates in Nov-2019

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 – Nov 2019


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

Start date: 11-Nov 2019

End date: 11-December-2019

It offers secured NCDs.

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

It offers both secured NCD’s for 18 months, 24 months, 48 months, 66 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 175 Crores with an option to retain another Rs 175 Crores aggregating to Rs 350 Crores.

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

What are the Interest Rates offered in Kosamattam Finance Nov 2019 NCDs?


Kosamattam Finance NCD Nov 2019 - Interest Rates

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 – Nov/December 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 in 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 FY19 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 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.

2) Attractive yield up to 10.75%.

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

Why not to invest?


1) 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.

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

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

How to invest?

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

You may like: Latest FD rates from Small Finance Banks in Nov-2019

Should you invest in Kosamattam Finance NCD – Nov 2019?


These NCDs are secured in nature and offer high interest rates / yield. These company NCDs have low credit rating. Investing in NCDs in NBFC companies is high risk now. You should stay away from putting your hard earned money in such low credit rating NCDs. You can invest in some of the high credit rating NCDs that are keep coming to market now and then.

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Suresh

Kosamattam Finance NCD – Nov 2019 Review

2 comments

  • Prasanna Ramachandran

    Needs few clarifications – Can you please suggest

    Kosamattam NCD is not provided by ICICI Direct.
    Can I invest offline thro Karvy and link it to my Demat (DP ID)?
    Once alloted to my Demat account, can i track it in my portfolio of ICICI Direct?
    Would the maturity proceeds be credited to the same Bank account which i am using now for investing?

    Regards
    Prasanna

    • Surprised to note that ICICIdirect is not offering it. You can transfer the demat holdings to ICICIdirect once you apply through other demat account what you are talking about. Once you link your NCDs to ICICIdirect, all maturity amounts would be credited to bank account that is linked to ICICI demat account

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