10.47% Kosamattam Finance NCD – August/September 2021 – Review
Kosamattam Finance is coming up with secured NCD bonds now. These bonds would open for subscription on 30th August, 2021. Kosamattam Finance is a leading NBFC company in India. The NCD interest rates for Kosamattam Finance NCD are up to 10% and yield works up to 10.47%. These NCDs are offered for 20 months to 84 months tenure. These interests are paid either monthly or on maturity. Should you invest in Kosamattam Finance NCD August/September, 2021? What are the risk factors one should consider before investing in such high risk NCDs?
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About Kosamattam Finance Limited
Company is a systemically important non-deposit taking NBFC primarily engaged in the gold loan business, lending money against the pledge of household, jewelry in the state of Kerala, Tamil Nadu, Karnataka, Andhra Pradesh, Delhi, Maharashtra, Gujarat and Telangana along with the Union Territory of Puducherry.
Kosamattam Finance NCD August/September, 2021 – Issue Details
Subscription opens on 30-August-2021
Subscription closes on 24-September-2021
NCD’s are available in 8 different options. The tenures for these NCDs are for 20 months, 24 months, 36 months, 42 months, 50 months, 72 months and 84 months tenure.
Coupon interest rates for Category I, II III & IV investors (including Retail investors) are between 8.5% to 10%. Yield on these NCD bonds works out up to 10.47% which is highest.
These are secured NCDs.
Interest is payable monthly or on maturity depending on the option chosen by the NCD investor.
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 within 6 working days from the issue closure date. Hence these are some what liquid investments.
These are allotted on first come first serve basis. Hence the issue can be closed before this date if it is oversubscribed before the closure date.
NRI’s cannot apply to this NCD subscription.
The base issue size for August 2021 NCD issue is Rs 150 Crores with an option to retain over subscription up to Rs 150 Crores totaling to Rs 300 Crores.
Karvy Investor Services and SMC Capitals are the lead managers for the issue.
Kosamattam Finance August, 2021 NCD Prospectus
Interest rates of Kosamattam Finance August, 2021 NCD
What are the credit ratings for these NCDs?
These NCDs have been rated as BWR BBB+/Stable by Brickwork Ratings which indicates that instruments with this rating are considered to have moderate degree of safety regarding timely servicing of financial obligations. Such instruments carry moderate credit risk.
How is the company doing in terms of profits?
Here are the details of profits of the company.
Year ending Mar-2019 – Rs 43.14 Crores
Year ending Mar-2020 – Rs 47.63 Crores
Year ending Mar-2021 – Rs 65.31 Crores
Why to invest in these NCDs?
1) This Kosamattam NCD offer attractive interest rates where investors can get interest up to 10% per annum and yield up to 10.47%
2) Kosamattam Finance generates consistent margins. This means that company has ability to pay interest payment on time to its NCD holders without any delay.
3) It issues secured NCDs. These NCDs are safe compared to unsecured NCDs. In case company gets wind-up/shut down for some reason, secured NCD investors would get preference in repayment of capital along with interest as those backed up by assets of the company. Hence it is safe to invest in such secured NCD options.
Why not to invest in these NCDs?
1) The company has a credit rating of BBB+ / Stable from BWR Ratings. Bonds that have a credit rating with below A grade are considered as very high risk.
2) Recent outbreaks of the novel coronavirus could have a significant effect on its results of operations and could negatively impact its business, revenues, financial condition and result of operations.
3) Refer prospectus for complete risk factors.
How to subscribe to these NCDs?
This issue is available in only in demat form. You can apply online or through any of the broker website where you are maintaining a demat account. Application forms can be downloaded on the lead manager web site. For more information on this you can refer prospectus.
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Should you invest in Kosamattam Finance NCD in Aug/Sep-2021?
Kosamattam Finance NCD offer high interest rates and yield. Banks are offering low interest rates, hence investors would get tempted with such NCDs. These NCDs are rated as BBB+/Stable by BWR Ratings which are considered as low rating. Such credit ratings may further fall in future. One should always invest in AAA rated NCDs. For me this NCD issue is HIGH RISK considering the credit rating provided by credit rating agency. I would advise investors to stay away from such high risk NCDs as of now.
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This could be a foolish query in your eyes. But could you please clarify the difference between Coupon Rate and Effective Yield. Which of these indicate the actual Interest Rate?
1) Coupon rate is nothing but interest rate. If the NCDs are applied in cumulative option, the interest is computed based on principal amount + interest accrued till year.
2) Yield is earnings over a specific period of time. e.g. if you invested Rs 1 lakh and for 5 years you get Rs 40,000 interest overall the yield is 40,000 / 1 Lakh x 100 = 8% per annum. In net summary, this tells you how much simple interest you would be getting.
I have a question. Please bear with me if is a silly question as I am ignorant about NCDs.
When you say high risk, do you mean risk to the monthly payment or risk to the principal amount?
Please clarify my doubt.
High Risk can be any of the following:
1) There could be delay in getting interest amount
2) There could be delay in getting repayment of capital on maturity
3) There could be risk of credit ratings getting downgraded and company can shut down (e.g. DHFL is the classic case) and investors would not get their principal back.
AAA rated NCDs generally do not offer very high interest rates (eg Muthoot Finance) while BBB rated NCDs often do. That is my observation! We cannot Have our cake and Eat it too! When interest rates are high, the risks are also high.
I agree. The question is these are BBB rated and high risk. Since these are high risk, they offer high interest rates. Investors who take high risk can invest and get rewarded with high returns.
I don’t know why RBI or other regulators allow such issues, when they intrinsically risky and investors can burn their pockets?
After paying such high interest can they earn a profit in the near term? Against what is the NCD secured?
Krish, There is nothing wrong for BBB rated companies coming up with NCDs right? It is the investors who need to do their analysis before investing.
Intriguingly interest rate for 42 months is 10% and for 72 months is 9% which reflects inverted interest rate structure for longer duration and may mean that the Company is expecting interest rates to soften beyond 4 years period. You are requested to kindly throw some more light on this issue as why interest rate for longer tenure is lesser.
As again, interest rate is mouth watering tempting, otherwise, lower rating is the only drag on this.
I have also noticed this and wondered about it. Good that you have brought this point up.