9.25% DHFL NCD Aug / Sep 2016 – Tranche II – Should you invest?

DHFL NCD Aug - Sep 2016 - Tranche II ReviewDHFL NCD Aug / Sep 2016 – Tranche II – Should you invest?

During 1st week of this month, Deewan Housing Finance Limited (DHFL) has come up with Secured Redeemable Non Convertible debentures (NCD) offering 9.3% annualised yield which got subscribed in single day. With such a positive note, now Tranche-II of DHFL NCD Aug/Sep-2016 would open for subscription next week on 29th August, 2016. While I covered about DHFL NCD 2016 issue in my last article, we would cover the details of features and interest of DHFL NCD issue of Aug/Sep-2016 in this post. What are the positive features of DHFL NCD Tranche-II Issue of Aug/Sep 2016? What are the risk factors to be considered if you want to invest in DHFL Secured NCD’s?

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About Deewan Housing Finance Limited (DHFL)

DHFL is a deposit-taking housing finance company focused on providing financing assistance in India primarily in Tier II and Tier III cities and towns. The company has been providing services in the housing finance sector in India since 1984. Company provides secured finance to individuals, partnership firms and companies towards the purchase, construction, improvement and extension of home, new and resalable flats, commercial properties and land. It also provides non-housing loans which includes loans for commercial properties, medical equipments and for plant & machinery.

Features of DHFL NCD Aug / Sep 2016 – Tranche II

  • Issue start date: 29-Aug-2016
  • Issue end date: 12-Sep-2016
  • NCD’s are available in 3 options. 3 years, 5 years and 7 years tenure NCD’s are available.
  • Interest payable every year.
  • 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/NSE. Hence, these are liquid investments.
  • NRI’s cannot apply to this NCD subscription.
  • These NCD’s are rated as CARE AAA by CARE and BWR AAA by BWR indicating stable outlook.
  • Draft Prospectus can be downloaded this link

Interest rates of DHFL NCD Aug / Sep 2016 – Tranche II

Interest rates of DHFL NCD Aug - Sep 2016 - Tranche IIWhat is the issue breakup?

  • Retail Portion – 30%
  • QIB Portion – 30%
  • Corporate Portion – 10%
  • HNI Portion – 30%

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How is the company doing in terms of profits?

Its profits are as below:

  • Year ended Mar-2015 – Rs 323.72 Crores (9.5%)
  • Year ended Mar-2016 – Rs 749.3 Crores (10%)

Why to invest?

  • The company is earning consistent profits of over 9.5% in the last couple of years. This indicates strong repayment capacity of interest from its profits.
  • Attractive interest rates up to 9.25% per annum.
  • This is secured NCD issue. In case of any non performance of the company and the company gets closed for some reason, 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 preference is given to NCD investors and no guarantee that entire amount would be paid-back in such cases.

Why not to invest?

  • Business is particularly vulnerable to volatility in interest rates.
  • Any increase in the levels of non-performing assets in its loan portfolio, for any reason whatsoever, would adversely affect its business, results of operations and financial condition.
  • Company indebtedness and conditions and restrictions imposed by its financing arrangements could adversely affect its ability to conduct its business and operations
  • In order to sustain its growth, they will need to maintain a minimum capital adequacy ratio. There is no assurance that they will be able to access the capital markets when necessary in order to maintain such a ratio.
  • As an HFC, they face the risk of default and non-payment by borrowers. Any such defaults and non-payments would result in write-offs and/or provisions in its financial statements which may have a material adverse effect on its profitability and asset quality.
  • Other Internal and external factors can be read at risk factors of the NCD prospectus.

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How to apply these Deewan Housing Finance (DHFL) NCD Aug / Sep 2016 – Tranche II?

DHFL NCD Issue of Aug/Sep Tranche-II of 2016 is available in physical form as well as demat form. You can apply online on any of the broker website where you are maintaining a demat account. For more information on  this you can refer 1st page of the prospectus.

Conclusion: These DHFL Limited NCD’s are secured in nature. Though it carries some element of risk, they are secured. Several times, I advised investors to park money in securing NCD’s as they are safer compared to unsecured NCD’s. Considering high interest rates and secured NCD’s in nature, one can consider investing in these NCD’s after assessing risk factors indicated above.  

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DHFL NCD Aug / Sep 2016 – Tranche II

Suresh KP


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