As we see the rise of interest rates in the economy, debenture public issues are obligated to offer attractive yields to their investors. In its latest public issue, Edelweiss Financial Services Ltd is offering a public issue of Secured Redeemable Non-Convertible Debentures with the face value of Rs 1,000 to investors, including retail individuals with the allocation of 40%, with a plan to raise Rs 400 crore, with subscription open from October 3rd to October 17th. The process of allotment will be on a “first come, first serve” basis. Investors can choose from ten series of debentures spread across tenures of 24 months to 120 months. The interest payout is on a monthly, annual, and cumulative basis with the coupon rate ranging from 8.85% p.a. to 10.10% p.a.
About the company: Edelweiss Financial Services Limited (“EFSL”), was incorporated on November 21, 1995, under the name Edelweiss Capital Limited and started operations as an investment banking firm after receipt of a Category II license from SEBI. Edelweiss Capital Limited subsequently received a Category I Merchant Banker license from SEBI with effect from October 16, 2000. The name of Edelweiss Capital Limited was changed to ‘Edelweiss Financial Services Limited with effect from August 1, 2011.
Edelweiss Financial Services Ltd NCD Details
|Tranche II Issue opens:||Monday, October 03 2022|
|Tranche II Issue closes:||Monday, October 17 2022**|
|Allotment:||First Come First Serve Basis|
|Face Value:||Rs.1,000 per NCD|
|Issue Price:||Rs.1,000 per NCD|
|Nature of Instrument:||Secured Redeemable Non-Convertible Debentures|
|Minimum Application:||10 NCDs (Rs.10, 000) & in multiple of 1NCD|
|Rating:||“CRISIL AA-/Negative” (pronounced as
CRISIL double A minus rating with Negative
outlook) and “ACUITE AA-/ Negative”
(pronounced as ACUITE double A Minus)
Specific Terms of the Prospectus:
The terms of the NCDs offered pursuant to the Issue are as follows:
|Frequency of Interest Payment||Annual||Cumulative||Monthly||Annual||Cumulative||Monthly||Annual||Cumulative||Monthly||Annual|
|Tenor||24 Months||24 Months||36 Months||36 Months||36 Months||60 Months||60 Months||60 Months||120 Months||120 Months|
|Coupon (% per annum)
for NCD Holders in
Category I, II, III & IV
|Effective Yield (per
annum) for NCD Holders
in Category I, II, III & IV
|Amount (₹ / NCD) on
Maturity for NCD Holders
in Category I, II, III & IV
|₹ 1,000.00||₹ 1,185.00||₹ 1,000.00||₹ 1,000.00||₹ 1,304.00||₹ 1,000.00||₹ 1,000.00||₹ 1,592.75||₹ 1,000.00||₹ 1,000.00|
An additional incentive will be provided of 0.20% p.a. for all Categories of Investors in the proposed Issue, who are also holders of NCD(s)/Bond(s) previously issued by Edelweiss Financial Services Limited, and/ or ECL Finance Limited, Edelweiss Broking Limited, Edelweiss Retail Limited, Edelweiss Housing Finance Limited, Edelweiss Retail Finance Limited and Nuvama Wealth Finance Limited (formerly known as Edelweiss Finance & Investments Limited) as the case may be, and/or are equity shareholder(s) of Edelweiss Financial Services Limited as the case may be, on the deemed date of allotment. This means that the effective range of return for this category goes to 9.05%-10.30% p.a.
Strengths of the company:
The company has a pan India and international network excluding EWM offices spanned across a total of 219 offices (including approximately 216 domestic offices in approximately 26 Indian cities and three international offices in three international locations) as of June 30, 2022.
The asset quality of the overall credit book has continued to be under control with Gross NPA at 2.51% and Net NPA at 1.80% as on March 31, 2022, Gross NPA at 6.71%, and Net NPA at 5.84% as on March 31, 2021, compared to 3.20% and Net NPA at 2.75% as on March 31, 2020
Edelweiss today enjoys a strong brand franchise in the financial services space backed by a reputation for consistent focus on execution and innovation.
The company may be impacted by volatility in interest rates, which could cause the net interest margins to decline and adversely affect the profitability. While the interest income was Rs84.31 crore in the fiscal year 2021, the company recorded a loss of Rs190.84 crore in the fiscal year 2022
The NCDs proposed to be issued under this Tranche II Issue have been rated “CRISIL AA-/Negative (pronounced as CRISIL double a minus rating with Negative Outlook)”. Ratings reflect a rating agency’s opinion of the financial strength, operating performance, strategic position, and ability to meet the obligations. The business of the company is significantly dependent on funding from the debt capital markets and commercial borrowings. The demand for such funds is competitive and the ability to obtain funds at competitive rates will depend on various factors, including the company’s ability to maintain positive credit ratings.
With nominal returns potentially going into double digits, this is an attractive proposition due to the current scenarios from a return perspective which will be able to provide a regular monthly income for up to 10 years. The allotment is on a first come first serve basis with an additional incentive of a maximum of 0.20% p.a. if the investor who is also a holder of NCD(s)/Bond(s) previously issued or is an equity shareholder of Edelweiss Financial Services Limited, though the company is offering an attractive coupon rate one must also be taking into consideration of the CRISIL rating which for this NCD is CRISIL AA-. As the NCD is going to be listed on BSE one can always encash the amount invested as one desires, and due to the availability of the NCD in only Demat form, one must have a Demat account opened to apply.