IIFL Finance Secured NCD Tranche 2 – Get answers to all queries

The NCD issue has a base issue size of Rs100cr but it comes with a green-shoe option to retain up to Rs900cr in the event of oversubscription.

Sep 27, 2021 08:09 IST India Infoline News Service

The latest issue of non-convertible debentures (NCDs) by IIFL Finance, the fund-based business of the IIFL Group, will be open for subscription from 27th September 2021 to 18th October 2021(with an option of early closure). Here are some specific responses that would answer some of key questions in the minds of investors.

What is the total issue size of the proposed NCD Issue Tranche 2?

The NCD issue has a base issue size of Rs100cr but it comes with a green-shoe option to retain up to Rs900cr in the event of oversubscription. Hence, if the green-shoe option is fully utilized, then the total size of the issue could go up to Rs1,000cr.

The NCDs will have a face value of Rs1,000 and investors looking to apply in the NCD issue can apply in minimum of 10 NCDs entailing a minimum investment of Rs10,000.

Can you tell me something about the asset quality of IIFL Finance?

This is an important question, which investors must know about. As of June 30, 2021, IIFL Finance has assets under management (AUM) of Rs.43,160 crore. On this lending book the total gross NPAs are just about 2.2%, indicating that the company has managed its asset quality in a rather disciplined manner through the COVID pandemic.

The net NPAs are just about 1.0%. As an investor, you can take solace from the fact that nearly 86% of the loan book of IIFL Finance is secured with collaterals. The current NCD issue is also a Secured NCD issue.

Can you tell me about the tenure of the bonds and the interest rates on these NCDs

Actually there are a number of permutations and you can choose from annual interest option, monthly option and cumulative option. The table below is a gist.
Tenure of Bond Series Name Interest Paid Coupon Rate(p.a.) Redeemed at Effective yield (% p.a.)
24-Months Series I Annual 8.25% Rs.1,000.00 8.25%
24-Months Series II Cumulative N.A. Rs.1,171.80 8.25%
36-Months Series III Annual 8.50% Rs.1,000.00 8.49%
36-Months Series IV Cumulative N.A. Rs.1,277.60 8.50%
60-Months Series V Monthly 8.42% Rs.1,000.00 8.75%
60-Months Series VI Annual 8.75% Rs.1,000,00 8.75%
60-Months Series VII Cumulative N.A. Rs.1,521.41 8.75%
Data Source: IIFL Finance

To encapsulate, you have three tenure options of 24 months, 36 months and 60 months available to choose. In each of these options, you can opt for annual coupon payment or for cumulative payment. The cumulative payment is like a deep-discount bond which is issued at par and redeemed at premium. You have monthly option only in the 60-month tenor.

Are the NCDs credit rated and what is the rating assigned?

India’s largest and oldest rating agency, CRISIL, has rated the NCDs “AA/Stable”. That is interpreted as Double-A rating with stable outlook. Brickworks has rated the NCD “BWR AA+/Negative”. That can be interpreted as Double-A Plus rating with negative outlook. To simplify, this rating refers to high degree of safety regarding timely servicing of interest and principal with low credit risk.

You must also remember that today IIFL is a household brand and has won the trust and faith of millions of investors. The biggest strengths of the group are its reputation and its record of debt servicing in the past.

Can you tell me about the holding mode of these bonds and the TDS that will be deducted on interest? Is the interest taxable?

There are a number of sub-questions here so let us address them one by one. The NCDs can only be held in demat mode. Under Regulation 7 of the SEBI NCS Regulations, the bonds will only be directly credited to your registered demat account on successful allotment.
Regarding TDS, there will be no TDS applicable since the issue is made in demat mode and the NCDs are listed on the stock exchanges. Hence no TDS will be deducted by IIFL while paying the interest.

Regarding the tax on interest, this interest is absolutely taxable and will be taxed at your peak rate of tax as other income. Even in case of cumulative (deep-discount bonds), the accrued interest each year must be shown as income and tax has to be paid on it, although you would redeem the bonds only on maturity. However, it is always advisable to consult your tax advisor / financial advisor to get a more personalized perspective.

Are there additional incentives for existing investors of IIFL Finance?

Existing investors in IIFL Finance equity shares and/or holders in the past tranches of IIFL Finance & Group companies like HFC bonds/NCD will get an additional incentive of 0.25%.

Will the NCDs be listed on a recognized stock exchange?

While BSE will be the designated stock exchange, the NCDs will be listed on the NSE and the BSE.

Is there any reservation for retail investors in the NCD issue?

There is no reservation, but there are quotas for each category as under.
Category Investor Type Allocation
Category I Institutional Portion 10%
Category II Non-Institutional Portion 10%
Category III High Net Worth Investors 40%
Category IV Retail Investors 40%

Can I invest in the name of HUF and can my brother who is an NRI invest in the NCD?

HUFs or Hindu Undivided Family can invest under the name of the Karta either under the Retail category or the HNI category. HNI is defined as an investment of Rs10,00,000 across all NCD options. Non Resident Indians (NRIs) and foreign nationals are not eligible to invest in the NCD issue.
For further queries, refer to the FAQs section on iifl.com/bonds

IIFL Secured NCD Tranche-II got closed on 8th October, 2021.

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