The 400-day maturity NCDs from Manappuram Finance Limited have emerged as an attractive investment from tax purposes as no interest would be paid during the life of the bond and would accrue on the instrument to be paid on maturity. This could be used as a capital gains instrument and become effectively tax free if held to maturity. There is no TDS on the coupon interest paid to these NCDs holders provided that the NCDs are held in demat form or if interest paid to debenture holder is less than Rs. 2,500 and interest is paid by way of A/C payee cheque.
The NCD Issue with two investment options and yield to maturity of up to 12.56% (per annum) closes on September 5, 2011, with an option of early closure as may be decided by the board of directors of the Company subject to necessary approvals. There is no entry / exit load in this Issue of Bonds. This Issue of Bonds is secured (as compared to FMP & Debt MF) by way of mortgage of the immovable property of the company as identified in the debenture trust deed and a charge on all current assets, book debts, receivables (both present and future) , except those receivables specifically and exclusively charged, on a first ranking pari passu basis with all other lenders to the Company holding pari passu charge over the security such that a security cover of 1.10 times of the outstanding amount of Bonds, at all times, till the Bonds are completely redeemed.
Manappuram Finance Limited (the “Company”) is one of the leading listed NBFCs lending money against the pledge of household, used, gold jewellery (“Gold Loans”) in India, in terms of gold loan portfolio as of March 31, 2011, 2010 and 2009 and also the fastest growing gold financing company in India in terms of gold loan portfolio for the fiscal year 2010 [Source: IMaCS Industry Report (2010 Update)],
The Company opened on August 18, 2011, its maiden public issue of bonds in the nature of secured, redeemable, non-convertible debentures (“Bonds”) of face value of Rs. 1,000 each aggregating to Rs. 400 crore with an option to retain over subscription up to Rs. 350 crore, aggregating to Rs. 750 crore (the “Issue”). The face value of each Bond is Rs. 1,000 and the minimum application can be for five Bonds (Rs. 5,000) and in multiples of one Bond thereafter. The Bonds will be listed on Bombay Stock Exchange (“BSE”) and will have a tradable lot size of 1 Bond. The Bonds proposed to be issued by the Company have been rated CARE AA- by Credit Analysis and Research Limited (“CARE”) and BWR AA- by Brickwork Ratings India Pvt. Ltd. (“Brickwork”).
For resident NCD holder, interest received would be subject to tax at the normal rates of tax. Capital gains arising on the transfer of long term capital assets being listed securities are subject to tax at the rate of 10% of capital gains calculated without indexation of the cost of acquisition. Short-term capital gains on the transfer of listed debentures, where debentures are held for a period of not more than 12 months would be taxed at the normal rates of tax. However, the investor is requested to consult his/her tax consultant for details.
There are two investment options:
Option I: The maturity date is 400 days from the deemed date of allotment and the maturity amount per Bond is Rs. 1,132.25 for Bondholders in all categories (Face Value of the Bonds plus redemption premium). The yield to maturity for bondholders in all categories is 12% p.a.
Option II (Semi-Annual interest payment): The maturity date is 24 months from the deemed date of allotment. The interest rate is 12% p.a. for Bondholders in Categories I and II and 12.2% p.a. for Bondholders in Category III. The yield to maturity is 12.34% p.a. for Bondholders in Categories I and II and 12.56% for Bondholders in Category III. The interest payment is semi-annual and the face value plus any interest that may have accrued is payable on redemption.
The funds raised through this Issue will be utilized for various financing activities including lending and investments and towards business operations including for capital expenditure and working capital requirements, after meeting the expenditures of, and related to, the Issue.
The Lead Managers to the Issue are Morgan Stanley India Company Private Limited, A. K. Capital Services Limited, Axis Bank Limited and ICICI Securities Limited. The Co-Lead Managers to the Issue are RR Investors Capital Services (P) Limited, Karvy Investor Services Limited and SMC Capitals Limited.
Headquartered in the southern Indian state of Kerala, the Company’s Gold Loan portfolio as of March 31, 2011, comprised more than 2 million Gold Loan accounts with 1.19 million customers aggregating to Rs. 6,370.541 crore of Gold Loans in principal amount (net of assignments), which is 99.32% of its total loans and advances. As of March 31, 2011, it disbursed Gold Loans to customers from a network of 2,064 branches in 20 states and union territories of India, including 1,567 branches in the southern states of Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. Its lending functions are supported by an in-house, custom developed information technology platform that allows it to, record relevant customer details and approve and disburse the loan. The Company has had an investment grade rating from approved credit rating agencies since 1995. Its current rating is P1+ from CRISIL (a subsidiary of Standard & Poors) for short-term debt instruments, including commercial paper, which is the highest rating for short-term debt instruments. CRISIL has also given an A+ rating for its NCD issues. In addition, it has a LA+ rating from ICRA Limited.
