DHFL NCD Issue – Aug 2016 Review
Deewan Housing Finance Limited (DHFL) has come up with Secured Redeemable Non Convertible debentures (NCD) which offers 9.3% annualized yield. DHFL NCD would open for subscription on 3rd August, 2016. DHFL is issuing unique NCD’s where it offers CPI Linked Interest rates for one of the options. How good is DHFL NCD 2016? What are the positive features of DHFL NCD Issue of Aug 2016? What are the risk factors to be considered if you want to invest in DHFL Secured NCD’s?
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 – August 2016
- Issue start date: 3-Aug-2016
- Issue end date: 16-Aug-2016
- NCD’s are available in 10 options. One of the option is CPI Linked interest rates.
- Interest payable monthly, annual or at maturity depending on the option of NCD.
- 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.
- More details about these NCD's can be read at this link.
Interest rates of DHFL NCD Aug 2016
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 of 9.3% per annum.
- CPI Linked interest rates for X option makes this NCD issue attractive. It is the first company to issue CPI Linked NCD Bonds. Earlier RBI has issued Inflation Indexed bonds, which are similar to this.
- This is secured NCD issue. In case of any non performance of the company and 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 on page no. 12 of the NCD prospectus.
What are CPI Linked Floating Interest rate NCDs?
Company is offering CPI Linked floating interest rates NCD under Series X which is based on Reference CPI plus applicable spread. The specified spread shall be 4.08% p.a. for QIBs and Corporates and 4.18% p.a. for HNIs and Retail Investors. Spread will be fixed throughout the tenor of the Series X NCDs, since the floating interest rate on such NCDs is total of Reference CPI plus the fixed spread, floating interest rate will change according to change in Reference CPI.
e.g. Currently the CPI rate is 5.02%. For first year, you would get CPI + Spread. Means 5.02% + 4.8% = 9.2%. Second year, if CPI rate changes (increases or reduces), the rate also changes.
How to apply these Deewan Housing Finance (DHFL) NCD of August 2016?
DHFL NCD Issue of 2016 is available in physical form as well as demat form. You can apply online with any of the broker 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 advise investors to park money in securing NCD’s as they are safer compared to unsecured NCD’s. Considering high interest rates, secured NCD’s in nature, CPI Linked Interest rates for one of the options, one can consider investing in these NCD’s after assessing risk factors indicated above.
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