With activity in equity primary markets at its nadir, make hay while the sun shines is the new motto of the grey market.
After the bond issue of State Bank of India, the non-convertible debentures (NCDs) of Shriram Transport Finance Company have caught the fancy of punters in Gujarat, Indore, Mumbai and Rajasthan.
However, compared to SBI's Rs 10,000 crore bond issue, STFC's NCD issue size is only Rs 500 crore, with an equal amount of over-allotment option, which will enable the company to raise Rs 1,000 crore.
"Times are bad. Brokers are ready to take any little public issue. Grey market activity is at its lowest since the initial public offer (IPO) of Coal India in November last year," said a dealer with a Mumbai broker. The CIL IPO had seen around Rs 2,000 crore turnover in the grey market.
Currently, bets are that the NCD issue, which has a face value of Rs 1,000 each, will list at a Rs 16 premium. The expected premiums doubled on Tuesday, as the issue was subscribed three times. It may rise further if the subscription soars.
There is demand, as lead managers are offering Rs 400 commission to brokers on every form they get for the issue. The commission on allotment will be around Rs 1.15 for brokers from the lead managers, the dealer said. Punters are expecting a turnover of Rs 50-60 crore in this issue for the grey market.
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Shriram had taken the debt capital route in the past, too, to mop funds. It had witnessed increasing levels of retail and high net worth individuals’ participation to its successive instruments. The current issue opened yesterday and is to close on July 9.
NCDs have gained popularity due to the higher coupon rate and high liquidity, as they are listed on the stock exchanges. STFC will list on the National Stock Exchange.
There is an option for investors in STFC. Under the first, the interest rate is 11.60 per cent for investments of Rs 5 lakh and below, and the interest rate payable will be 11.35 per cent if the investment is above Rs 5 lakh.
The second offers an interest of 11.35 per cent for investments of Rs 5 lakh and below, and 11.10 per cent for investments above Rs 5 lakh. For qualified institutional buyers, the interest payable is lesser at 11.1 per cent for five years and 11 per cent for a period of three years.
Retail investors can apply for a minimum of Rs 10,000 worth of debentures. The secured NCD issue is rated ‘AA/Stable’ by Crisil and ‘CARE AA’ by CARE.
In the SBI bond issue, grey market operators were offering as much as Rs 15,000 to retail applicants to subscribe on their behalf. On maximum application, an investor made Rs 15,000 by selling the bonds on the listing day and also additional interest money from the bank. — the issue closed on February 26 and the bonds were credited to investors’ demat accounts only on March 16. The interest was for these 20 days.
The country has a vibrant grey market for IPOs. However, the recent dull overall scenario in the stock market has hit this market. In a first this year, there were no IPOs lined up for this month.