10.75% Kosamattam Finance NCD – December 2020 – Review
Kosamattam Finance is coming up with redeemable secured and unsecured NCD bonds Issue that would open for subscription on 23rd December, 2020. Kosamattam Finance Limited is a leading NBFC company in India. Kosamattam Finance NCD interest rates are up to 10.25% and yield works out to be 10.75%. Kosamattam Finance offers these bonds for the tenure of 400 days to 84 months. One can get fixed income, either monthly, yearly or on maturity. Should you invest in Kosamattam Finance NCD December, 2020? What are the risk factors one should consider before investing in such high risk NCDs?
About Kosamattam Finance Limited
Company is a systemically important non-deposit taking NBFC primarily engaged in the gold loan business, lending money against the pledge of household, jewelry in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry. Its Gold Loan portfolio as of the six month period ended Sep-20 and for the financial years FY20, FY19 and FY8 comprised of 97.49%, 97.29%, 94.94% and 91.56% of its our total loan portfolio as of those dates.
Kosamattam Finance NCD December, 2020 – Issue Details
Subscription opens on 23-December-2020
Subscription closes on 19-January-2021
NCD’s are available in 8 options. It offers NCD bonds for 400 days, 30 months, 39 months, 48 months, 66 months and 84 months tenure.
Coupon interest rates are between 9.25% to 10.25%. Yield on these bonds are up to 10.75%.
It issues secured NCDs + Unsecured NCDs. Its unsecured NCDs are only for 84 months tenure.
Interest is payable monthly, yearly and on maturity depending on the option chosen by the NCD 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 NCD bonds would be listed on BSE within 6 working days from the issue closure date. Hence, these are liquid investments.
NRI’s cannot apply to this NCD subscription.
The base issue size is Rs 175 Crores with an option to retain over subscription up to Rs 175 Crores totaling to Rs 350 Crores.
Karvy Investor Services and SMC Capital are the lead managers for the issue.
Kosamattam Finance Dec 2020 NCD – Interest Rates
What are the credit ratings for these NCDs?
These NCDs have been rated as BWR BBB+/Stable by Brickwork Ratings which indicates that instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
How is the company doing in terms of profits?
Here are the details of profits of the company.
Year ending Mar-2019 – Rs 43.14 Crores
Year ending Mar-2020 – Rs 47.63 Crores
Half year ending Sep-2020 – Rs 30.36 Crores
Why to invest in these NCDs of Kosamattam Finance?
1) These NCDs offer attractive interest rates where investors can get interest up to 10.25% per annum and yield up to 10.75%
2) It generates consistent margins. This means that company has ability to pay interest payment on time to its NCD holders without any delay.
3) It issues secured and unsecured NCDs. Its secured NCDs are safe compared to unsecured 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 as those backed up by assets of the company. Hence it is safe to invest in such secured NCD options.
Why not to invest in these NCDs?
1) The company has a credit rating of BBB+ / Stable from BWR Ratings. Bonds that have a credit rating with below A grade is where your investment would be considered as high risk.
2) Recent outbreaks of the novel coronavirus could have a significant effect on its results of operations and could negatively impact its business, revenues, financial condition and result of operations.
3) They have been subject to an inspection by the RBI and any adverse action taken could affect its business and operations.
4) 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.
5) They are subject to restrictive covenants in certain short-term and long-term debt facilities provided to them by its lenders.
6) Its ability to access capital also depends on its credit ratings. Any downgrade in 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) Refer prospectus for complete risk factors.
How to subscribe to these NCDs?
This 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. Application forms can be downloaded on the lead manager web site. For more information on this you can refer prospectus.
Should you invest in Kosamattam Finance NCD in Dec-2020?
Here are a few thoughts about such NCDs:
1) Currently major banks are providing reduced interest rates which are between 4% to 5.5% per annum. Kosamattam Finance is offering NCDs that offers high interest rates up to 10.25% and yield up to 10.75%. This would attract investors who are looking to earn higher fixed income.
2) These NCDs are rated as BBB+/Stable by BWR Ratings which are considered as low rating. One should always invest in AAA rated NCDs or fixed deposits which can provide some security for their investments.
3) One should not forget about NBFC crisis (e.g. DHFL crisis) that started a few years back. Your investment as well as interest could be at risk and there could be delays in repayment of your matured NCDs.
5) For me this NCD issue is HIGH RISK considering the credit rating provided by credit rating agency. I would advise investors to stay away from such high risk NCDs as of now.
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