Shriram City Union,City Union Bank
By Geetanjali Kedia
Introduction:
Shriram City Union Finance, a deposit-taking NBFC belonging to the Chennai-based Shriram Group, is entering the debt capital market on Wednesday 16th April 2014, with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 100 crore with an option to retain another Rs. 100 crore, taking the total fund raising to Rs. 200 crore.
Issue Details:
Closes on 16th May, with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs 10,000, and in multiples of Rs, 1,000 thereof.
Rating: ‘AA’ by CARE indicating high degree of safety for timely servicing of financial obligations
Listing: On BSE with one NCD comprising a trading lot. NCD would be issued in both demat and physical form, while traded only in the demat form.
What’s on offer: The NCD issue has 6 investment options as under:
| Particulars | Series I | Series II | Series III | Series IV | Series V | Series VI |
| Frequency of interest payment | Annual | Annual | Annual | NA | NA | NA |
| Tenure | 2 years | 3 years | 5 years | 2 years | 3 years | 5 years |
| Coupon Rate (% pa) |
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| 10.50% | 10.75% | 10.85% | NA | NA | NA |
| 11.00% | 11.50% | 11.75% | NA | NA | NA |
| Effective Yield (% pa) |
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| 10.50% | 10.75% | 10.85% | 10.50% | 10.75% | 10.85% |
| 11.00% | 11.50% | 11.75% | 11.00% | 11.50% | 11.75% |
| Put / Call Option | None | None | None | None | None | None |
| Redemption Amount (per NCD) |
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| Face Value | Face Value | Face Value | Rs. 1,221.03 | Rs. 1,358.41 | Rs. 1,673.70 |
| Rs. 1,232.10 | Rs. 1,386.20 | Rs. 1,742.76 |
Allocation Ratio: 80% issue reserved for resident individuals / HUFs – split equally between investment application upto Rs. 5 lakh and for investment application above Rs. 5 lakh. Balance 20% reserved for institutions.
Company Background:
Part of the Shriram Group, this company with over 50% institutional shareholding, specializing in SME finance, 2 wheeler and auto loans, gold and personal loans, has assets under management of Rs. 14,937 crore, as of 31st December 2013. During 9mFY14, company clocked income of nearly Rs. 800 crore and PAT of Rs. 129 crore, on equity of Rs. 59.3 crore and networth of Rs. 2,770 crore. Its capital adequacy is a comfortable 24.26% while its net NPAs were 0.67% of loan assets, as of 31st December 2013. Its total borrowing is close to Rs. 11,000 crore, half of which through bank borrowings, and 42% from retail and public issue of NCDs. Thus, the company has a healthy financial position along with a strong balance sheet.
Rate of Return:
Series III and VI offering 11.75% yields pa on 5 year NCDs are the highest rates in the issue, which are attractive vis-à-vis bank FD, as no bank is offering double digit interest rates on term deposits. Moreover, PSU tax free bond offers have closed in March. However, these are not the highest coupon rates as companies like Muthoot and Manappuram have offered yield of 12% plus. However, their credit ratings were lower at AA- and A+.
HNIs and retail investors falling in different tax brackets will have tax-effective yields from the current NCDs as under:
| (in pa) | Tenure | ||
| 2 years | 3 years | 5 years | |
| Effective Yield | 11.00% | 11.50% | 11.75% |
| Tax-adjusted Yield | |||
| - 10% tax bracket | 9.89% | 10.34% | 10.56% |
| - 20% tax bracket | 8.76% | 9.15% | 9.35% |
| - 30% tax bracket | 7.60% | 7.95% | 8.12% |
Thus, these NCDs are not for individuals in the 20% or 30% tax bracket, as post-tax earnings are in single digits. For those in the 10% tax bracket, they can consider the issue, as Shriram City Union is a safe lender to deposit your funds. Hence only those in the 10% tax bracket with surplus liquid funds to be parked for medium term can consider this NCD issue.
Recommendation:
Shriram Group is being a reputed and consumer-centric business house, coupled with good credit rating, those investors in 10% tax bracket or zero tax bracket can apply in the NCDs.