10.41% ECL Finance NCD Nov-2019 – Should you Invest?

ECL Finance NCD November 2019 ReviewECL Finance NCD Nov-2019 Review

Edelweiss group company, ECL Finance is coming up with Tranche II NCDs that would open for subscription on 4th November, 2019. ECL Finance is Systemically Important Non – Deposit Taking Company (NBFC) in India. It is issuing secured NCD’s. The yield is as high as 10.41% per annum and attracting investors now. It is offering NCDs of 24 months to 120 months. Should you invest in ECL Finance NCDs of November 2019 – Tranche-II? What are the risk factors an investor should consider before investing ECL Finance NCD of 2019?

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What are Non Convertible Debentures?

If you would like to know more about Non Convertible Debentures (NCDs), you can check this video.

About ECL Finance Limited

They are one of the leading systemically important non-deposit taking NBFCs, focused on offering a broad suite of secured corporate loan products, retail loan products which are customized to suit the needs of the corporates, SMEs and individuals. Its corporate and retail loan products include:

1) Structured Collateralised Credit: Its structured collateralised credit loans constituted 18.97% of the total Loan Book as per India AS as at December 31, 2018. Structured collateralised credit loans are offered mostly to corporates against collateral such as liquid market securities, pledge of other securities, pledge of shares by promoters, immovable property, etc. The loans include bridge financing or other short term loans to corporates. The funds raised are utilized for the working capital requirement of the corporates, expansion and diversification of business among other uses. The tenure of the loans is generally up to two years.

2) Wholesale Mortgages: This includes various structured financing solutions for finance to developers for real estate projects under construction, which constituted 37.78% of the Company’s total Loan Book as per Ind AS as at December 31, 2018.

3) SMEs and others: This includes credit facilities and short term loans to SMEs for meeting their business requirements, which constituted 11.67 % of the Company’s total Loan Book as per Ind AS as at December 31, 2018.

4) Loans against securities: This includes loans to investors against their existing portfolio of investments, which constituted 17.16 % of the Company’s total Loan Book as per Ind AS as at December 31, 2018.

5) Retail Mortgages – Loans against Property: This includes loans offered to self-employed individuals for business purposes against a mortgage of residential or commercial property, which constituted 12.57 % of the Company’s total Loan Book as per Ind AS as at December 31, 2018.

6) Agri Credit: As a part of agricultural value chain services, we extend short term finance (usually for a period of three to nine months) against Agri commodities inventory stored in warehouses managed by the sister concerns of the Company, which constituted 1.85 % of the Company’s total Loan Book as per Ind AS as at December 31, 2018.

ECL Finance NCD Nov 2019 Issue details

ECL Finance Limited is issuing secured redeemable Non Convertible Debentures (NCD’s) to the tune of Rs 100 Crores with an option to retain another Rs 400 Crores over subscription totaling to Rs 500 Crores. It comes with 9 different options, which has 24 months, 39 months, 60 months and 120 months tenure NCDs.

What does Secured NCDs mean?

They are offering secured NCD’s now in Nov 2019. The principal amount of the NCDs to be issued in terms of the Draft Shelf Prospectus, this Shelf Prospectus and respective Tranche Prospectus together with all interest due on the NCDs in respect thereof shall be secured by way of an exclusive charge on identified receivables of Company and a pari passu charge in favour of the Debenture Trustee on an identified immovable property of Company, as may be decided mutually by Company and/or the Debenture Trustee at the time of filing of relevant Tranche Prospectus. The company will create appropriate security in favor of the Debenture Trustee for the NCD Holders on the assets adequately to ensure 100% asset cover for the NCDs.

Features of ECL Finance NCD – Tranche II – Oct/Nov-2019

Issue start date: 4-Nov-2019

Issue end date: 22-Nov-2019

NCD’s are available in 9 different options. They are offering cumulative and non cumulative interest payment option in these NCDs.

The interest of these NCDs is payable monthly, yearly and on maturity.

The face value of the NCD bond 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.

Non-resident Indians (NRI’s) cannot invest in these NCD’s.

CRISIL rated these NCDs as Crisil AA-/Stable and CARE, as CARE AA-: Stable. The rating of the NCDs indicates that instruments with this rating are considered to have a high degree of safety regarding timely servicing of financial obligations.

Edelweiss Financial Services is the lead managers for this issue.

You can download the Tranche-II Prospectus of ECL Finance NCD 2019 here.

Here are the interest rates on the Nov 2019 NCD’s of ECL Finance

ECL Finance NCD November 2019 - Interest and Yield Rates

What is the issue break-up?

QIB Portion – 20%

Corporate – 20%

High Net Worth Individuals – 30%

Retail Investors – 30%

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How is the company doing in terms of Financials?

Here are the financials:

1) Its total revenues increased from Rs 3,272 Crores in FY2018 to Rs 4,017 Crores in FY2019.

2) Its profits increased from Rs 470 Crores in FY2018 to Rs 565 Crores in FY2019.

Why to invest in ECL Finance Ltd NCD?

1) Attractive interest rates where one can get up to 10.41% yield.

2) It is issuing secured NCDs which are safe to invest compared to other unsecured NCDs.

Why not to invest in ECL Finance NCD 2019?

1) Its credit rating from CRISIL and CARE Ratings is downgraded to AA-/Stable in the last 6 months from AA Positive.

2) High levels of customer defaults and the resultant non-performing assets could adversely affect the Company’s business, financial condition, cash flows, results of operations and future financial performance.

3) The company may be impacted by volatility in interest rates, which could cause its Gross Spreads to decline, and consequently, affect its profitability.

4) Its top 20 borrowers have an exposure of 24.16% and 30.74% of its total exposure as on March 31, 2018 and December 31, 2018, respectively. Its inability to maintain relationships with such customers or any default and non-payment in future or credit losses on its single borrower or group exposure where they have a substantial exposure could materially and adversely affect its business, future financial performance and results of operations.

5) Company is subject to supervision and regulation by the RBI, as an NBFC-ND-SI, and other regulatory authorities and changes in the RBI’s regulations and other regulations, and the regulation governing Company or the industry in which Company operates could adversely affect its business.

6) Company’s inability to comply with observations made by the RBI or any adverse action by the RBI may have a material adverse effect on its business, financial condition, cash flows and results of operations.

7) Company’s inability to obtain, renew or maintain the statutory and regulatory permits and approvals which are required to operate its existing or future businesses may have a material adverse effect on its business, financial condition, cash flows and results of operations.

8) The company may not be able to recover the full value of collateral or amounts which are sufficient to cover the outstanding amounts due under defaulted loans on a timely basis or at all and as a result, which could adversely affect its financial condition, cash flows and results of operations.

9) The company extends margin funding loans or loans against securities to the Company’s clients and any default by a client coupled with a downturn in the stock markets could result in substantial losses for the company.

10) Company’s business requires substantial capital and any disruption in the sources of its funding or an increase in its average cost of borrowings could have a material adverse effect on its liquidity, financial condition and cash flows.

11) Certain of Company Directors are involved in certain legal and other proceedings and there can be no assurance that they and its Directors will be successful in any of these legal actions. In the event they are unsuccessful in litigating any of the disputes, its business and results of operations may be adversely affected.

12) A decline in the Company’s capital adequacy ratio could restrict its future business growth.

13) You can refer all risk factors in the prospectus of the company.

How to apply ECL Finance NCD Issue of 2019?

You can apply these NCDs in demat form only. If you have demat account, you can login to your account and go to IPO/NFO/NCD section and apply for the same. The process of applying NCD would be through ABSA (Your amount would be blocked initially and upon allotment, your amount would be deducted and NCD unit allotment would be done, else your amount would be unblocked) You can reach out to any of the lead managers websites to know more details on how to apply them.

How ECL Finance NCD Nov-2019 interest is taxed?

Since you need to apply through the demat form only, the company would not deduct any TDS on the interest paid on these NCD’s. It is immaterial whether the company would deduct TDS or not, one has to declare the NCD interest as income in their income tax returns (ITR) and pay income tax based on the individual tax bracket.

When this ECL Finance NCD’s of 2019 would get listed on BSE?

These ECL Finance Limited NCDs of November, 2019 would get closed on 22nd November, 2019. They would get listed after 6 working days from the date of closure. However, these NCD is allotted on a first come, first serve basis. If the NCD issue is closed before due date due to this, these would be listed as soon as the issue is closed.

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Should you invest in ECL Finance NCD of Nov-2019 issue?

These NCDs are secured in nature and offer high interest rates / yield. One should note the downgrade of company NCD ratings in the last 6 months. Investing in NCDs in NBFC companies is high risk now. Investing in NCD’s for long term of 5-10 years would still be high risk. Since ECL Finance offer NCDs for short to medium term of 24 months, 39 months and 60 months tenure, high risk investors can invest in these NCDs considering the risks indicated here. One can ignore 10 years NCDs as we do not know how the company would perform in the long run. Alternatively, you can invest in some of the best diversified mutual funds that can provide high returns with similar risk though not guaranteed.

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Suresh KP

ECL Finance NCD Nov 2019 Review

Suresh KP


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