9.1% Tata Capital Financial Services Limited NCD Sept 2018 – Should you invest?

9.1% Tata Capital Financial Services Limited NCD Sept 2018 will hit the market for subscription from 10th September 2018. Is it worth to invest in this NCD?

9.1% Tata Capital Financial Services Limited NCD Sept 2018

About Tata Capital Financial Services Limited

Tata Capital Financial Services Limited, a public limited company incorporated under the Companies Act, 1956 and having its registered office at 11th Floor, Tower A, Peninsula Business Park, Ganpatrao Kadam Marg, Lower Parel, Mumbai 400 013, Maharashtra, India. Its promoter is Tata Capital Ltd.

The main business of TCFS is to carry on the business of a leasing company, hire purchase company and finance company and to undertake and/or arrange or syndicate all types of business relating to financing of consumers, individuals, industry or corporates, for all kinds of vehicles, aircraft ships, machinery, plants, two-wheelers, tractors and other farm equipments, consumer durables, equipment, renewable energy equipment/ infrastructure, construction equipment, housing equipment, capital equipment, office equipment, their spares and components, real estate, infrastructure work or activity etc.

The objective of the 9.1% Tata Capital Financial Services Limited NCD Sept 2018 of issue

At least 75% will be utilized for the purpose of onward lending, financing, and for repayment /prepayment of interest and principal of existing borrowings of TCFSL.

Remaining 25% will be utilized for General Corporate Purposes.

WHAT IS A DEBENTURE?

It is a debt instrument which offers a fixed rate of interest for the fixed tenure like your Bank FDs. Usually, Companies or Governments use the tool of debentures to borrow or raise the money for their business expansion.

It is nothing but you are lending a loan to the company. In return, the company will give you an interest rate fixed for a fixed tenure.

WHAT ARE NCDS (NON-CONVERTIBLE DEBENTURES)?

There are two types of debentures. One is CONVERTIBLE and another is NON-CONVERTIBLE. The convertible debentures are the ones that can be converted into equity shares at a later time. This convertibility provides an attraction to the investor but yields lower interest rates. Non-convertible debentures does not convert into equity shares thus can yield a higher interest rate.

Convertible NCDs turning to shares means you will be the part of the owner of that company. NCDs or Non-Convertible Debentures are again two types. Once is SECURED and another is UNSECURED. Secured NCDs are backed by the issuer company’s assets to fulfil the debt obligation in case of bankruptcy of the company.

However, UNSECURED NCDs are not backed by any assets and in case the company goes bankrupt, there can be an issue in paying back the bondholders. Only after the payment is made to every entity which has some security, the unsecured NCD bondholders have any chance of getting back their money. Hence, these NCD’s have high-interest rates.

TAXATION OF NCDS (NON-CONVERTIBLE DEBENTURES)

Before proceeding further to blindly invest, check the tax treatment of such NCDs. The taxability of interest on NCD will depend on the method of accounting you follow for recognizing your income.

If you are following the cash method of accounting, interest will be taxable as and when the interest is received (like in this case of NCDs).

However, under the mercantile method of accounting, interest income on NCD will be taxable as and when interest is accrued and due.

If you hold the listed NCD, (cumulative or annual interest payment), for a period of one year or more, and on selling such NCD if you earn the gain, then such gain will be long-term capital gains (LTCG) chargeable to tax at 10% without indexation benefit.

If you hold the listed NCD for less than one year and on selling of the said NCD and earn the profit then such gain will be short-term capital gains (LTCG) chargeable to tax at normal rates.

Hence, you have to consider the interest income taxation and also capital gain taxation (if you sell it before maturity).

9.1% Tata Capital Financial Services Limited NCD Sept 2018 – Eligibility and Features

# Whether secured or unsecured?

The NCDs of 3 years and 5 years are SECURED. However, the 10 Yr period NCD is unsecured.

# Issue opening date

10th September 2018

# Issue closes on 

Will update this soon

# Interest or coupon rate

For 10 years – annually 9.1%.

For 5 years – annually 8.9%.

For 3 years – annually 8.8%.

# Issue size

Total Issue Size: INR 7,500 Crores
(Base Issue Size: INR 2,000 Crores).

# Mode of issue

Demat and Physical form. This NCD will be listed in NSE and BSE. Hence, you can sell it and liquidate if you do so before the maturity.

# Face value

Face Value or Issue Price of one NCD is Rs 1,000 with a minimum investment of 10 bonds. Means you have to invest the minimum of Rs.10,000.

# Tenure of the NCDs

These NCDs have tenures of 3 yrs, 5 yrs and 10 years.

# Frequency of interest payment

Annually ONLY

# Minimum application size

Rs 10,000 (10 NCDs) and in multiples of Rs 1,000 thereafter.

# Listing

The NCDs are proposed to be listed on NSE and BSE stock exchanges.

# Credit rating

The NCDs proposed to be issued under this Issue have been rated “CRISIL AAA / Stable” for an amount of up to
Rs.7,50,000 lakh by CRISIL Limited vide its letter dated August 15, 2018, and have been rated “CARE AAA; Stable” for an amount up to Rs.7,50,000 lakh by CARE Ratings Limited vide its letter dated August 14, 2018. The ratings of the NCDs issued by CRISIL Limited indicate the highest degree of safety regarding timely servicing of financial obligations.

# Put and Call Option

Callable Debenture means it can be redeemed by the Issuer (company) before the bond’s maturity. A debenture with a ‘Put option’ works in exactly the opposite manner, wherein the investor can sell the bond to the issuer at a specified price before its maturity.

I will update about this section soon.

Allotment

These NCDs will be alloted based on the ‘first come, first served’ basis.

# Whether NRIs can invest?

NRIs are not eligible to apply to this NCD issue.

# Tax Deducted at Sources (TDS)

The interest income would be taxable with these bonds. However, NCDs taken in a demat form will not attract any TDS. The investor will have to pay tax on the interest income while filing his/her income tax return.

However, in case of NCDs held in physical form, as per the current provisions of the IT Act, tax will not be deducted at source from interest payable on such NCDs held by the investor (in case of resident Individuals and HUFs), if such interest does not exceed Rs.5,000 in any financial year. If interest exceeds the prescribed limit of Rs.5,000 on account of interest on the NCDs, then the tax will be deducted at the applicable rate. To avoid TDS, the investors have to submit the Form 15G/15H accordingly.

9.1% Tata Capital Financial Services Limited NCD Sept 2018 – Should you invest?

# INTEREST RATE

If you consider the current Bank FD rates of some other debt fixed interest rates, then you notice that they are at a low end (slowly now inching up). Hence, if you are looking for some fixed return of interest on your capital, then definitely the best choice.

# SECURITY AND CREDIT RATING

These NCDs are secured and unsecured also and hence take a call based on your requirement and risk. However, never rely on current rating. Because current credit rating may change in future based company’s financial condition.

# INTEREST RATE PAYMENT

This NCD offers only annual interest rate payment. Hence, those who looking for monthly or quarterly interest income may have to stay away from this NCD.

# TAXATION OF NCDS

Do remember that you have to pay the tax on whatever the interest you receive from such NCDs. Hence, always consider the returns based on post-tax returns rather than EYE catching pre-tax returns.

The formula to calculate the same is as below.

Post-tax returns = Pre-Tax returns * { (100-Tax Rate) / 100 }

Hence, before proceeding further, you have to look for your NEED, RISKS and TAXATION.

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