JM Financial Credit Solutions NCD Review

JM Financial Credit Solutions Limited

JM Financial Credit Solutions Limited NCD (JM Financial Credit Solutions NCD) issue will be raising up to ₹750 crore by issuing secured non-convertible debentures (NCDs). The NCD issue will open on May 28 with a base issue size of ₹300 crore with an option to retain oversubscription up to ₹450 crore, aggregating up to ₹750 crore (tranche I issue). JM Financial Credit Solutions is the NBFC arm of the JM Financial Group

The JM Financial Credit Solutions NCD issue is offered in six options and carry tenors ranging from 38 months to 120 months. For Retail investors cthe public NCD issue offers attractive interest rate in the range of 9.11-9.75 per cent.

JM Financial Credit Solutions NCD issue:

About JM Financial Credit Solutions Limited:

JM Financial Credit Solutions Limited is is a Systemically Important Non-Deposit taking Non-Banking Financial Company (NBFC-ND-SI). The company was jointly promoted by the JM Financial Group, a leading diversified financial services provider in the country, and INH Mauritius 1 Fund (INH Global), a global fund led by Mr. Vikram Pandit, ex-CEO of Citigroup. JM Financial Limited (JMFL, rated [ICRA]AA (stable)), the holding company of the JM Financial Group, holds 50.01% equity stake in the company as on December 31, 2017 while the balance is held by the INH Mauritius 1 Fund and other. The company is engaged in wholesale lending, largely catering to the real estate sector, and had a loan book of Rs. 7,339 crore as on March 31, 2018 (vis-a-vis Rs. 5,658 crore as on March 31, 2017). For the financial year ending March 31, 2018, JMFCSL reported a net profit of Rs. 328 crore on a total income of Rs. 960 crore as compared to a net profit of Rs. 277 crore on a total income of Rs. 788 crore for the financial year ending March 31, 2017.

It is a relatively new company with a strong promoter backing of JM Finance Group. JM Financial group has interests in investment banking, retail and institutional equity broking, wealth management, investment advisory services, portfolio management, asset management, commodity broking, securities-based lending, corporate lending, commercial real estate lending, private equity, and asset reconstruction.
As of March 31, the company, which has been focusing on real estate project financing, had a lending book size of about ₹7,339 crore.

JM Financial Credit Solutions NCD issue Structure

JM Financial Credit Solutions NCD issue is structured into following categories of Investors:
Category I – QIBs– 20% of issue; Rs. 125 crore
Category II – Non-Institutional Investors – 20% of issue; Rs. 125 crore
Category III – HNIs i.e. above Rs. 10 lakhs – 30% of issue; Rs. 125 crore
Category IV – Retail Investors, including HUFs – 30% of issue; Rs. 225 crore

Options for Retail:

The NCD issue will carry coupon rate of 9.25% p.a. for a period of 38 months, 9.50% p.a. for 60 months and 9.75% p.a. for 120 months for annual interest payment options.
Monthly option is not available for 38 month period.
Additional 0.10% Coupon rate for Senior Citizens ( for alottees)
The NCDs are Secured in nature.
ICRA and India Ratings have rated JM Financial Credit Solutions NCD issue as ‘AA’ with a ‘Stable’ outlook.
Available in Demat Form only.
Listing at BSE only.
Allotment will be made on a first-come first-served basis.

Assessment:

NCDs are taxable, thus the return get reduced by individual’s Tax bracket. for the shortest tenure of 38 months at a coupon rate of 9.25% per annum, the post-tax earning for an investor in the highest tax bracket will be around 6.48%; for those in the 10% tax bracket, will be around 8.33%.
TDS is not deucted if NCDs are held in Demat form.
The AA rated issue of JM Financial Credit Solutions Limited NCD has more interest rate as the recent issue of DHFL NCD which has recently concluded but DHFL NCDs enjoy better credit rating of AAA. Further while DHFL is an established institution, JM Financial Credit Solutions Limited is a new company with operating history of few years even as it enjoys backing of strong promoters i.e. JM Financial group.
Some investors are able to get upfront brokerage from brokers in range of 0.5- 1% which increases the YTM (Yield to Maturity).
The newly listed NCDs of Edelweiss Retail Finance NCD have been able to trade at par or about 1-1.5% above.
I intend to apply in JM Financial Credit Solutions NCD issue as a measure of diversification of my NCD portfolio in moderate quantity & even though it is a new company it has the strong parentage being a part of the JM Financial Group which is a diversified financial service provider having a demonstrated track record, strong franchise and established market position in the industry. My preference is 38 month annual option as interest rates could harden over the long run and generally I am not comfortable to invest for long periods with private companies in their NCDs.
Thus JM Financial Credit Solutions NCD which comes from a relatively new company promoted by strong JM Finance group and rated (AA) offer higher interest rates than recently concluded DHFL NCD issue which had AAA rating.
As JM Financial Credit Solutions NCD issue is relatively small at 750 crore, it could get subscribed on Day 1.

Standard disclaimer: I am not a SEBI registered analyst and above analysis is for educational purpose only. I may have vested interest in every stock I discuss and my views may be biased. Please do your own due diligence as stock market investments have high degree of inherent risk.