Investor appetite for non-convertible debentures (NCDs) remains high as companies offer high coupon rates. In 2013-14 companies have managed to raise R33,842 crore through NCDs and tax-free bonds, almost twice the amount of R16,982.05 crore companies raised in 2012-13. In 2013-14, tax-free bonds, too, have found demand better than last year as interest rates being offered are higher. This is partly due to a fairly high yield on the government bond.
Given that inflation and interest rates remained higher, India Infoline’s Housing Finance Limited (IIHFL) has been compelled to offer investors a coupon of 12.68% for its NCD issue.
The fact that the issue is rated only AA- by Crisil and Icra is another reason for the high coupon.
IIHFL, the housing finance subsidiary of India Infoline Limited (IIFL), is looking to raise R200 crore and its NCDs have a tenure of six years. The monthly option offers investors a yield of 12.68% per annum, while investors can also look to double their money in six years under the cumulative option.
Market watchers point out that with inflation tapering off, however, yields may trend down. Observes Ajay Manglunia, senior vice-president at Edelweiss Capital, “Inflation is likely to come down. We’re already seeing signs of that and policy rates might help too".
Earlier in the month, Manappuram Finance hit the market with its public issue of NCDs to raise R200 crore and offered a yield of 12.61%.
Investors are also looking at tax-free bonds as an attractive long-term investment as there were reports suggesting they would be discontinued by the government. Finance minister P Chidambaram did not allot tax-free bonds for state-owned companies in his interim budget speech earlier this month.