10.75% Kosamattam Finance NCD – Aug 2018 – Should you invest?

Kosamattam Finance NCD – Aug 2018 ReviewKosamattam Finance NCD – Aug 2018 – Should you invest?

After 4 months, Kosamattam Finance is again coming up with NCD subscription now. Kosamattam Finance NCD opened for subscription on 23rd August, 2018. These NCDs offer interest rates up to 10.25% and provides high yield up to 10.75%. This Non Banking Finance Company is operating from Kerala and has a presence across South India. In these NCDs, your money would get doubled in 84 months compared to Banks where your money would get doubled in more than 105 months. Should you invest in Kosamattam Finance NCD of August-2018? What are the positive features of Kosamattam Finance August 2018 NCD?  What are the risk factors you should consider before investing in such NCD’s.

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About Kosamattam Finance Limited

They are a systemically important non-deposit taking NBFC primarily engaged in the Gold Loan business, lending money against the pledge of household Jewellery in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry.

Features of Kosamattam Finance NCD – Aug 2018

Kosamattam Finance is offering Secured, Redeemable Non Convertible Debentures as well as unsecured NCDs now in August, 2018. Here are the features of these NCDs.

Start date: 23-August-2018

End date: 21-September-2018

It offers secured and unsecured NCDs.

Thse NCD’s have monthly, yearly and cumulative options.

It offers both secured NCD’s for 24 months, 36 months, 48 months, 60 months and for 84 months tenure.

Bond face value 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 (provided the buyer is available on that date when you sell such NCD’s).

NCD’s can be invested through Demat account or Physical form.

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

The issue size is Rs 125 Crores with an option to retain another Rs 125 Crores aggregating to Rs 250 Crores.

VIVRO Financial Services Private Limited  is the Book Running lead Manager for this issue.

Below is the Interest rate chart.

Kosamattam Finance NCD – Aug 2018-Interest rates

How the company is doing in terms of Financials?

1) It earned revenues of Rs 352 Crores for FY17 and Rs 430 Crores for FY18.

2) Its profits are Rs 15.68 Crores for FY17 and Rs 30.8 Crores for FY18.

3) Net Non Performing Assets (NPA) are at 0.27% in FY17 and 0.59% in FY18.

How ranking of NCD’s done?

The NCDs would constitute secured obligations of the Company and shall rank pari passu with the Existing Secured Creditors on all movable assets, including book debts and receivables, cash and bank balances, loans and advances both present and future of the Company equal to the value 1 time of the debentures outstanding plus interest accrued thereon and first ranking pari passu charge on the immovable property situated at Nagappattinam Dist. Kelvelur Taluk, Velankanni Village, Tamil Nadu. The NCDs proposed to be issued under the Issue and all earlier issues of debentures outstanding in the books of the Company having corresponding assets as security, shall rank pari passu without preference of one over the other except that priority for payment shall be as per applicable date of redemption. The company confirms that all permissions and/or consents for creation of a pari passu charge on the current assets, book debts, loans and advances, and receivables, both present and future as stated above, have been obtained from all relevant creditors, lenders and debenture trustees of the Company, who have an existing charge over the above-mentioned assets.

What are the objects of the issue?

Here are the objects of the offer.

1) For the purpose of onward lending and for repayment of interest and principal on existing loans;

2) General Corporate Purposes;

Why to invest?

1) It offers secured and unsecured NCDs. Secured NCD’s are secured by movable assets, including book debts, receivables, etc. Means in case company gets windup due to bad performance of the company, investors of NCD would get preference in re-payment of the principal. However, there could be delays. Hence it is relatively safe to invest in such secured NCD’s. Investors can stay away from unsecured NCDs.

2) Attractive interest rates of 10.75%. You can double your money in 84 months.

3) Company is earning good growth in interest income in the last few years.

Why not to invest?

1) It offers unsecured NCDs which are very, very high risk. If the company goes bankrupt for some reason, investors of unsecured NCDs would be given preference like any other creditor and would be given normal  preference in repayment of capital or interest of the company.

2) India Rating agency has rated these bonds as IND BBB Outlook Stable.  The rating of NCDs by India Ratings indicates that instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such low credit rating NCD’s are high risk.

3) Restrictive or penal order may be passed against us by the RBI in on-going and / or future proceedings that could hamper its operations or services, or a part thereof, or levy penalties in connection therewith, which may in turn adversely affect its operations and profitability.

4) They have been subject to an inspection by the RBI and any adverse action taken could affect its business and operations.

5) 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.

6) Its ability to access capital also depends on its credit ratings. Any downgrade in its 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) Company, two of its Promoter Directors and one of its Group Companies are subject to certain legal proceedings and any adverse decision in such proceedings may have a material adverse effect on its business, financial condition and results of operations.

8) One of its Group Companies is enabled by its memorandum of association to undertake activities similar to the activities conducted by its Company, which may be a potential sort of conflict of interest for them and which may have an adverse effect on its operations.

9) The company was unable to trace certain secretarial records, including records pertaining to the allotment of Equity Shares acquired by its past shareholders prior to August 2004.

10) A major part of its branch network is concentrated in southern India and they derive the majority of its revenue from southern India. Any breakdown of services in these areas could have a material and adverse effect on its results of operations and financial conditions.

11) Its business is capital intensive and any disruption or restrictions on raising financial resources would have a material adverse effect on its liquidity and financial condition.

12) They have had negative net cash flows from its operating, investing and financing activities in the recent fiscal years. Any negative cash flows in the future may adversely affect its results of operations and financial condition.

13) Complete risk factors of Kosamattam Finance NCD of August-2018  can be read at risk factors indicated in the prospectus.

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How to invest?

You can login to your demat account and apply under IPO/NCD section. In case you want to apply in physical form, the process is indicated in the prospectus. These NCDs would get listed within 12 days from the closure of the NCD subscription.

You can download the prospectus of Kosamattam Finance August-2018 NCD here

Conclusion: Kosammatam Finance offers good interest rates. While its financials are okay, its low credit rating is a concern. High risk investors who are willing to take the risk can invest in these secured NCDs by considering all the negative risk factors. I would advise moderate risk and low risk investors stay away from such NCD’s as of now.

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Kosamattam Finance NCD – Aug 2018 – Should you invest

Suresh KP

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