SREI Equipment Finance Ltd. is coming out with a 9.75% Pubic issue of secured redeemable Non-Convertible Debentures (NCD) with total issue size of 500 crore. SREI Equipment Finance Ltd is a wholly owned subsidiary of SREI Infra Ltd which had earlier come out with an NCD issue in Sept 2016 for 10% NCDs and issue remained opened for almost one month before getting fully subscribed. This presents another opportunity to investors who are looking for higher fixed interest return while willing to take some risks. A  Quick review and Analysis of the NCD:

Updated 20-01-17
Listing of  NCDs of SREI Equipment Finance Ltd
The NCDs have been listed today. For symbol names & ISIN Click Here

Final(Day 4) Subscription Response
Subscription: SREI Equipment Finance Ltd NCD Day 4
Category 1 (30% share) Category II (20% share) Category III (50% share) Overall
Day 4  (Base Issue 250 cr) 1.68 0.18 3.41 2.245
Day  4  ( Total Issue 500 cr) 0.84 0.09 1.71 1.12
Day 3 Subscription Response
Subscription: SREI Equipment Finance Ltd NCD Day 3
Category 1 (30% share) Category II (20% share) Category III (50% share) Overall
Day 3  (Base Issue 250 cr) 1.55 0.15 3.32 2.155
Day 3  ( Total Issue 500 cr) 0.78 0.08 1.66 1.08
Day 2 Subscription Response
Subscription: SREI Equipment Finance Ltd NCD Day 2
Category 1 (30% share) Category II (20% share) Category III (50% share) Overall
Day 2  (Base Issue 250 cr) 1.21 0.14 2.35 1.566
Day 2 ( Total Issue 500 cr) 0.61 0.07 1.18 0.78
 
Day 1 Subscription Response
Subscription: SREI Equipment Finance Ltd NCD
Category 1 (30% share) Category II (20% share) Category III (50% share) Total
Day 1  (Base Issue 250 cr) 0.48 0.1 1.45 0.89
Day 1  ( Total Issue 500 cr) 0.24 0.05 0.725 0.45
 
Instrument Secured Redeemable Non-Convertible Debentures
Issue Date From Tuesday, 3rd Jan 2017 to Friday, 20th Jan 2017
Issue Size Base Issue Rs.250 Crore ; option to retain oversubscription up to Rs.250 Crore aggregating to Shelf Limit of Rs.500 Crores.
Face Value Rs.1,000/-
 Application Size Rs.10,000/-  ( 10 NCDs) across all Series &  in multiples of I NCD Thereof
Credit Rating “AA+” (outlook: Stable) by Brickworks AA/Stable by Smera  Ratings Ltd(Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations).

About the Company

SREI Infra is a finance company with lending operations in infrastructure. It also operates in :

  1. Project Financing of Infrastructure
  2. Project Advisory & development
  3. Equipment Finance in Infra sector, Equipment Rental
  4. Power Sector
  5. Capital Markets, venture capital, Insurance & Broking services

SREI Equipment Finance Ltd. which started as a joint venture is as on date a 100% subsidiary of SREI Infrastructure Finance Ltd and clocked a turnover of 2614 crore with a net profit of 115 crore for the year ended 2016. :

ISSUE STRUCTURE – BUCKET DETAILS
Category I – Institutional II – Non Institutional III – Individual
Category Allocation 30% of  Issue Size. 20% of Issue Size. 50% of Issue Size.
Bucket Size based on Issue size of  Rs.500 Crs Rs.150 Crores Rs.100 Crores Rs.250 Crores

ISSUE STRUCTURE
Option/Series I* II# III IV* V# VI VII*
Nature of NCDs Secured
Who can Apply All categories of investors (Category I, II and III)
Frequency of Interest Cumulative Monthly Annual Cumulative Monthly Annual* Cumulative
Tenor 400 Days 3 Years 5 Years
Coupon Rate (% p.a.) for :
Category I, II & N.A. 8.90% 9.25% N.A. 9.11% 9.50% N.A.
Category III N.A. 9.12% 9.50% N.A. 9.35% 9.75% N.A.
Effective Yield (% p.a.) for :
Category I, II & 8.63% 9.27% 9.29% 9.27% 9.50% 9.52% 9.50%
Category III 8.81% 9.51% 9.54% 9.55% 9.75% 9.77% 9.75%
Amount ( Rs./ NCD) on Maturity for ^ :
Category I, II & Rs.1,095/- Rs.1,000/- Rs.1,000/- Rs.1,305/- Rs.1,000/- Rs.1,000/- Rs.1,575/-
Category III Rs.1,097/- Rs.1,000/- Rs.1,000/- Rs.1,315/- Rs.1,000/- Rs.1,000/- Rs.1,593/-

Performance of 10% SREI Infra NCD issued on 6 oct 2016

Name of NCD SREI Infra EHFL
Coupon Rate 10 10
No. of years 5 10
Interest Frequency Annual Annual
Rating AA+ (BWR) AA
FV 1000 1000
FV  with accrued interest 1024.1 1045.8
Current Market Price 1030 1065
Traded Date 02-01-2017 02-01-2017
YTM 9.85% 9.71%
ISIN INE872A07UB7 INE530L07228
NSE  Code SREINFRA Y1 EHFLNCD N6
BSE Code 935898 935788
Security  ID 10EHFL26
Issue Dt 06-10-2016 19-07-2016
interest due date 06-10-2017 19-07-2017
Redemption  date 06-10-2021 19-07-2026

Assessment

    • Recent issue of  9.4% NCDs(Rated AA+ by CARE)  by Reliance Home Finance met with excellent response from all categories of investors and was oversubscribed on the Ist day itself and witnessed a 3 times over subscription
    • SREI Equipment Finance Ltd (SEPL) gross NPAs was 2.95 % as of March 31, 2016 and 2.72 % as of September 30, 2016, while the net NPAs as a percentage of total earning assets was 1.99 % as of March 31, 2016 and 1.87 %, as of September 30, 2016. There has been a downtrend in NPA’s for last few quarters
    • The present issue of Bonds are rated AA+ by Brickwork Ratings, which ensure a good degree of safety. The earlier issue of NCDs by its parent company SREI Infra which carried at 10% coupon & similar rating are trading in range of Rs. 1025-1031 giving an YTM of about 10.85%  but volumes have been low
    • Last NCD issue by SREI infra in Sept 2016 was of 1000 crore size and had to be kept open for entire month. This time issue is by its 100% subsidiary for 500 crore but coupon rate is lower at 9.77% vs. 10% of earlier issue. However in the last 3 months interest rates have been moving south
    • In the scenario of falling interest rates, SEFL NCD which has a lower duration (maximum 5 years)  is providing reasonable interest rate of 9.75% though the rating is a notch lower & hence associated with risks. The debentures are secured in nature which means in case of default by company investors would get priority in repayment of capital along with interest. But liquidity is a big issue.
    • NCDs are taxable, thus the effective  return gets reduced for those in tax bracket. For investors falling in high tax bracket of 30%, investing in NCDs may not not make much sense.
    • With upfront brokerage from brokers in range 1%, debt issues have also been attracting people looking for short term returns. This may not happen with all issues and depends on pedigree of the group.
    • Overall keeping in view some recovery in NPA shown by the company even as profits have gone down, and limited other high rate fixed investment options at this interest rate, small Investors looking for fixed income can take a very small exposure to the NCD.
    • If past is a guide, SEFL NCD issue may not close on first day. In the past SREI Infra issue of 1000 cr for 10% coupon rate NCD was open for quite some time. However this is a 500 cr issue & interest rates expected to move south may be helpful to ensure slightly better response.