IIFL Home Finance NCD Issue Opens: Should You Invest?
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Financial services company IIFL Home Finance is looking to raise up to Rs 1,000 crore through the issue of non-convertible debentures (NCDs). The base size of the issue in Tranche 1 is Rs 100 crore with a greenshoe option of Rs 900 crore. Greenshoe is an option used to issue additional bonds in case of high demand.
The issue opened for subscription on July 06, 2021 and will close on July 28, 2021. The allotment will be on a first come first serve basis.
NCDs are debt instruments that companies issue to raise long term capital. As the name suggests, these instruments cannot be converted into the equity shares of the company after a specified period. To compensate for the lack of convertibility, the rate of return on NCDs are usually higher than convertible debentures.
Key highlights of IIFL Home Finance NCD
IIFL Home Finance NCD is unsecured and has a long tenure of 87 months. It will offer an annual interest rate of 10%, which is much higher than the current interest rate of around 5.5% on bank deposits with similar tenure. Depending on the option, i.e. Series I, II, or III, you will be paid interest annually, monthly, or on maturity.
Edelweiss Financial Services, IIFL Securities, ICICI Securities, Trust Investment Advisors, and Equirus Capital are the lead managers for the issue. The face value of each bond is Rs 1,000. The minimum application is available for 10 NCDs, i.e. Rs 10,000. Thereafter, you can invest in multiples of Rs 1,000. CRISIL has assigned the NCD AA rating with Stable Outlook while Brickworks Rating has assigned it AA+ rating with Negative Outlook.
You must have an active DEMAT account to get the allotment of the NCDs. IIFL Home Finance NCD will be listed on BSE and NSE. The NCD will be listed within 6 working days from the date of the issue closure.
(Image source - www.freepik.com)
The following will not be eligible to participate in the issue:
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Minors without a guardian (A minor can apply though a competent guardian by filling an Application Form. It should contain the names of both the minor applicant and the name of the guardian.)
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Foreign nationals
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Person resident outside India
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Foreign Institutional Investors
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Foreign Portfolio Investors
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Non-Resident Indians
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Qualified Foreign Investors
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Overseas Corporate Bodies
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Foreign Venture Capital Funds
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Persons ineligible to contract under applicable statutory/ regulatory requirements
Table 1: Details of IIFL Home Finance NCD issue
(Source: www.indiainfoline.com)
About IIFL Home Finance
Incorporated in 2009, IIFL Home Finance is a subsidiary of IIFL Finance Ltd. It is a non-banking finance company (NBFC) registered with the RBI. As of March 31, 2021; the company's asset under management (AUM) stood at around Rs 20,600 crore. IIFL Home Finance is engaged in the following businesses:
1) Housing loan for purchase/renovation of residential units (70% of AUM)
2) Secured business loan provided against pre-owned residential / commercial properties for meeting business requirements (26% of AUM)
3) Affordable housing project loans (4% of AUM)
The company's product offering focuses on low & middle-income groups in suburbs of Tier 1, Tier 2, and Tier 3 cities. Its net NPA as of March 31, 2021 was at 1.2% with ROA at 2.6% and ROE at 20.6%.
Table 2: Key financial indicators of IIFL Home Finance
(Source: IIFL NCD Tranche 1 Prospectus)
Objective of NCD issue
IIFL Home Finance will utilise the proceeds from the NCD for onward lending, financing, repayment/ prepayment of interest and principal of existing borrowings, and for general corporate purposes.
Should you invest?
IIFL Home Finance NCD is offering an attractive interest rate that is currently higher than what most fixed income instruments are offering. However, you should know that a higher interest rate is to compensate for the risk associated.
NBFCs have been going through a difficult phase since the IL&FS fallout. The economic slowdown amid the pandemic has only added to the woes. Besides, the rising unemployment rate has made it difficult for many to services their EMI obligations. These factors pose a risk to the financial stability of the company.
IIFL Home Finance has CRISIL AA rating with a Stable outlook and Brickworks Rating of AA+ with a Negative outlook. This is a notch below the highest credit rating, but these securities still enjoy high degree of safety and low credit risk. IIFL Home Finance has clocked strong growth over the past few years, but the performance may or may not sustain in the future. However, the NCDs have a long tenure of 7.25 years. If the company's financial position weakens during this period, it can face a rating downgrade and/or default.
The NCDs are unsecured; it has no collateral backing. This makes it riskier than secured NCDs. In the unfortunate of event of bankruptcy or winding up of the company, it is usually the investors in secured NCDs that get preferential treatment.
Therefore, IIFL Home Finance NCD is suitable only for investors with high risk appetite. Investors who prefer safety of capital should give IIFL Home Finance NCDs a miss.
Warm Regards,
Divya Grover
Research Analyst
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