Shriram City Union Finance Ltd bonds, Non Convertible Debentures (NCD) – Is this a good investment option?
About Shriram City Union Finance Ltd
Shriram City Union Finance Ltd is part of Shriram Group. The company is a non banking financial company (NBFC), engaged in the vehicle financing, loans for appliances, personal loans, small business loans and loans against gold.
Details about the current public issue:
Shriram City Union Finance Limited is offering Unsecured – Non Convertible debentures (NCD’s) with a face value of ₹ 1,000 per NCD with a minimum subscription ₹ 10,000. The issue size would be ₹ 250 crores with an option to retain additional subscription of ₹ 250 crores. It offers 4 investment options. These bonds would be issued in dematerialized form, hence an investor need to have a demat account to apply for this.
Issue starts on 12-Sep-12 and ends on 26-Sep-12.
Benefits
- Effective yield is 11.75% per annum which is higher than the top bank fixed deposit rates.
- Crisil rated this issue as “AA-” and ICRA rates this as “AA”, stable rating. This grade is in line with other NCD issues (e.g. IIFL bond issue in Sep-12 or Shriram transport Finance co. bond issue in Jul-12). It indicates that the investment with high probability of meeting the financial payment obligations.
- These NCD’s are SECURED. This means in the event of any claim to be made to company; the bond holder would be first person in the queue where company need to make the payment.
- The non performing assets as a % of total loan advances have come down from 2.2% to 1.5% in financial year FY 10.
Risks
- The company operates in small loan segment of ₹ 1 lakh to 10 lakh, where the risk of repayment is high. This may increase the non-performing advances in future.
Conclusion: There are several NBFC bond issues started coming up this year like Shriram Transport Limited, India Infoline Finance Ltd and others are on the way. As indicated in my previous post of IIFL bond, look for secured bonds instead of unsecured bonds for protection of the capital. Since Shriram City Union Finance Ltd is issuing secured bonds, these are the safe investments. As the interest rates are good comparing to bank fixed deposits, if you are moderate risk taker, you can allocate some of your investments and invest in these bonds for maximizing the returns.
Readers, what is your opinion on investing in bonds? Do you feel these are the best investment options in India?
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Suresh
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I would still conclude that bond investments as well as stock investments are somewhat dangerous right now. In fact at any given time, there is some level of risk associated with any investment. It’s the nature of investing. Risk is a funny thing. When the stock market is rip roaring, most everyone is willing to take a little more risk than they really should, and when the market is depressed, most are so fearful that little to no level of risk can be tolerated. Neither of these extremes makes for good investing. Thanks for the post.