L&T Finance launched its public issue of non-convertible debentures (NCDs) on 6th of March, 2019, as announced earlier. The company is issuing these secured and redeemable NCDs to raise ₹1,500 crore, which also includes green-shoe option to retain oversubscription of ₹1,000 crore.
The NCDs will have coupon rates starting from 8.89% to a maximum of 9.35%. And it will have the shortest maturity period of 37 months to 120 months in the longest. The NCDs offered will have monthly, annual and cumulative interest payment options.
The issue is scheduled to close only on 20th of March, i.e. 15 days from the launch of the issue. However, it might be closed before the scheduled date in case of raising the targeted ₹1,500 crore.
Let us see all about the issue in detail below to help you decide whether to invest or not.
Size of L&T Finance’s NCD Issue
L&T Finance has set the base size of the issue as ₹500 crore. The company also has the option to retain oversubscription of up to ₹1,500 crore, under the green-shoe option of ₹1,000 crore.
Who Can Invest in L&T Finance’s NCD?
The investors are classified into four major categories viz. Category I -Category IV. Only an allotted percentage of the issue will be available for the investors under each category. Here are the categories of investors for the buying of L&T Finance NCDs, along with the allotment percentage.
Category II:Non-Institutional Investors & Corporate – 20% of the issue is reserved, which is ₹300 crore.
Category III: High Net-Worth Individuals (HNIs)& HUFs investing above ₹10 lakhs – 30% of the issue is reserved, which is ₹450 crore.
Category IV: Retail Individual Investors, including HUFs investing up to ₹10 lakhs – 30% of the issue
is reserved, which is ₹450 crore.
Minimum Investment in L&T Finance’s NCD
To make an investment with the L&T Finance NCD issue, an investor needs to buy a minimum of 10 bonds at a price of ₹1,000 each. This makes it mandatory to invest at least ₹10,000 to become an investor in this issue.
L&T Finance’s NCD’s Interest Rate on Offer With Respect To Tenor
The L&T finance NCD issue will carry a coupon rate in the following order with respect to the tenor of the issue.
For Annual Interest Payment:
i) 9.35% p.a. for a period of 120 months.
ii) 9.25% p.a. for a period of 60 months.
iii) 9.10% p.a. for a period of 37 months.
For Monthly Interest Payment:
i) 8.98% for a period of 120 months.
ii) 8.89% for a period of 60 months.
L&T Finance’s NCD Will Be Issued To
The NCDs will be issued to investors on the basis of First Come- First Served. Besides as well as on a date priority basis i.e. on the date of oversubscription, the allotment will be made on a proportionate basis to all the applicants of that day on which it gets oversubscribed.
L&T Finance’s NCD Will Not Be Issued To
This issue of NCD by the L&T Finance will not be issued to Non-Resident Indians (NRIs), foreign nationals and Qualified Foreign Investors (QFIs) among others who are not allowed to invest in this issue.
Rating of L&T Finance’s NCD
As seen above, these NCDs are secured in nature. A rating of ‘AAA/Stable’ has been given to this issue of NCDs. This stable rating is given by the debenture rating agencies CARE, ICRA and India Ratings. The AAA rating assures that this issue could be safe to invest considering the timely payment of interest and principal investment.
L&T Finance will be issuing the NCDs only in the demat form. Thus, it is mandatory to have a demat account to be eligible to apply for this issue.
SEBI has made ASBA mandatory to apply for debentures effective Oct 1, 2018, like it did for the equity IPOs. Hence, you cannot apply for this or any issue of NCDs with cheques.
Taxation & TDS of L&T Finance’s NCD interest
Since a demat account is mandatory to apply for this issue of NCDs, TDS will not be deducted on your interest income from this issue of NCDs. Nevertheless, the interest income from these NCDs will be taxable on the hands of the investor. Hence, you will be needed to pay tax for this income during your annual income tax filing.
On the other hand, if you close your demat account during the tenor of these NCDs, it will be re-materialised. Hence, for the NCDs held in physical form TDS will be deducted. For annual interest incomes above ₹5000, the TDS will at the rate of 10% per annum.
Premature Withdrawal of L&T Finance’s NCD
L&T Finance has not provided any options to facilitate premature withdrawal, there is no call option. Hence, you cannot redeem your NCD with the company before the tenor date. However, on the bright side, you can sell these NCDs on the stock exchange at any time.
Listing of L&T Finance NCDs on Stock Exchange
L&T Finance has decided to list this issue of NCDs on both, the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). The allotment and the listing on stock exchanges are expected to begin within six working days of the closing date of the issue.
L&T Finance NCDs @ 9.35%: Should you invest?
L&T Finance is an already established and well-reputed company. It is obvious enough for some investors to trust and invest in this issue of NCDs. Additionally the ‘secured’ and the ‘AAA’ status given by the rating companies could give the investors a “go for it” sign. Regardless of all this, you might ask,
“Should I invest in this NCDs of L&T Finance?”
Well, it depends on the investor to whether or not to invest in NCDs of L&T Finance or any other private companies for that matter.
The hook here is, even though this issue of L&T Finance NCD is rated AAA, the ratings are only temporary and are subject to change on over time. With no call option, if you had invested in this L&T Finance NCDs only because of higher ratings, it will be one of the worst decisions one can make.
If you are an investor with an appetite for extreme risks, you may consider investing in it.
If you want to take diversified risk then, I recommend accrual based income funds rather than opting for concentrated risk carrying NCD issues.