Shriram Transport Finance Company Limited (STFC) is tapping the capital markets with a bond issue of secured Non-convertible debentures aggregating to Rs 500 crs. The company has an option to retain over-subscription upto 500crs, effectively making this an issue of Rs 1000 crs. The face value is Rs 1000, with a minimum subscription amount of Rs 10,000. The issue opens on Monday the 27th of June and closes on Saturday the 9th of July. In case of oversubscription, the allotment would be on the basis of first come first served.
| Face Value of Bond | Rs 1000 each |
| Issue Size | Rs 1000 crs |
| Period of Bond | 2 options of 3 years and 5 years |
| Coupon Rate Category I and Category II | 11% per annum and 11.10% per annum |
| Coupon Rate for Unreserved Individual | 11.10% per annum and 11.35% per annum |
| Coupon Rate for Reserved Individual Portion | 11.35% per annum and 11.60% per annum |
| Category I or Institutional Portion | QIB’s |
| Category II or Non-Institutional Portion | Bodies Corporates and Firms |
| Category III Unreserved Portion | Resident Indian Individuals and HUF’s – application to be above 5 lakhs |
| Category III Reserved Portion | Resident Indian Individuals and HUF’s – application to be upto 5 lakhs |
| Reservation Category I | 10% of issue or upto 100 crs |
| Reservation Category II | 10% of issue or upto 100 crs |
| Reservation Category III | 40% of issue for unreserved category or individuals applying above 5 lacs |
| Reservation Category III | 40% of issue for unreserved category or individuals applying upto 5 lacs |
| Lead Managers to the Issue | JM Financial Consultants Private Limited |
| ICICI Securities Limited | |
| Co-Lead Managers to the Issue | R R Investors Capital Services (P) Limited |
| Karvy Investor Services Limited | |
| Isssue Opening Date | Monday 27th June |
| Isssue closing date | Saturday 9th July |
| Credit Rating | CRISIL AA/Stable and CARE AA+ |
| Paid -up Capital | 22,61,84,068 Equity Shares |
| Market Cap as on 24th June 2011 | Rs 13,581.22 crs |
| Bid Lot | 10 bonds |
| Bidding Amount for Retail | 500 bonds of Rs 1000 each or 5 lakhs |
| Listing of Bonds | National Stock Exchange |
| Interest on Application | 2.5% per annum on application |
| Interest on Allotment | 7% per annum on allotment |
| Allotment | On first come first served basis |
Business
STFC as the name suggests is in the business of financing pre-owned commercial vehicles. STFC is the largest Indian asset financing company. The company provides financing for commercial vehicles and its primary borrowers are FTUs (first time users) and SRTOs (small road transport operators). It finances commercial vehicles, passenger commercial vehicles, multi-utility vehicles, three wheelers and also working capital requirements for FTUs and SRTOs. Recently the company has extended its services by providing loans for the purchase of equipment used in the infrastructure industry, and also for tractors.
The company was established in 1979 and has been in business now for over 32 years. The company is registered as a deposit taking NBFC with RBI since September 2000. The company has assets under management of over Rs 36,000 crs and the same have grown from Rs 29,000 crs in the previous year. In terms of size of the bond issue of Rs 1000 crs, this would amount to a requirement of a mere 15 days or less.
Objects of the debenture issue
The funds raised through this issue after meeting the expenditures of and related to the issue, will be used for our various financing activities including lending and investments, subject to applicable statutory and/or regulatory requirements, to repay our existing loans and our business operations including for our capital expenditure and working capital requirements.
Tenure and coupon rate
The company has divided the applicants into four broad categories. They are as follows: –
- Category I. Comprising of QIB’s
- Category II. Comprising of corporates and other bodies not eligible as QIB’s.
- Category III Comprising of HNI’s or retail applicants who subscribe for over 5 lacs
- Category III – Reserved. Retail applicants who apply upto five lacs.
There is a reservation for each category with 10% each being reserved for Category I and Category II. The remaining of the issue is reserved for individuals with 40% reserved for individuals applying for 5 lacs and more and 40% reserved for individuals applying for upto Rs 5 lacs.
There are two durations for each of the categories namely 3 years and 5 years. The payment of interest is annual. The coupon rate is 11% for 3 years and 11.10% for 5 years in Category I and Category II. In Category III, the HNI’s or applicants above Rs 5 lacs would get 11.10% for 3 years and 11.35% above 5 years. The retail category which is upto Rs 5 lacs would get 11.35% for 3 years and 11.6% for 5 years.
The company would also pay interest on the application money at the rate of 2.5% if allotment is not made and at the rate of 7% if allotment is made.
Financials
Though this is a bond issue and the company has very good ratings from credit agencies like CRISIL AA/Stable and CARE AA+ it still makes sense to talk about the financials. The total income has grown from Rs 4,496 crs in the financial year ended March 2010 to Rs 5,511.98 crs in the year ended March 2011. The net profit after tax has grown from Rs 873.1 crs to Rs 1,217.12 crs respectively.
| Rupees in crores | year 2010 | year 2011 |
| Income from operations | 4399.06 | 5312.34 |
| Other Income | 96.88 | 199.64 |
| Total Income | 4495.94 | 5511.98 |
| Interest Expense | 2246.81 | 2274.32 |
| Other Expenditure | 924.56 | 1400.12 |
| Total Expenditure | 3171.37 | 3674.44 |
| Profit Before Tax | 1324.57 | 1837.54 |
| Tax payments | 451.47 | 620.42 |
| Net Profit After Tax | 873.1 | 1217.12 |
Conclusion
SBI had come out with a bond issue where the coupon rate was 9.95% for retail investors and now STFC is offering secured debentures with a five year maturity at 11.6% coupon rate. These debentures would be listed on the NSE and there have been some concerns about liquidity of trading on the bond exchange. As far as a retail investor is concerned there would be no concern as these bonds would have some trading and there would be ample demand at a price which is yield effective at the current rate of interest.
I believe investors should apply for these secured debentures as they are attractively priced from a yield perspective and offer decent returns to investors. People applying in the retail category must apply on day one as there is a risk if the issue gets oversubscribed of non-allotment.
SEBI disclaimer: – I intend to subscribe to the above issue.
