Today I saw this new bond issue:
the attractive points are:
1. the maximum duration is 5 years so the money will not be blocked for very long
2. The company plans to list its NCD issue. Which means exit would be easy and also there will not be any TDS.
3. The interest rate for this AA rated bond issue is 11+% which is significantly higher than what one earns in Bank Fixed Deposit.
4. The leverage ratio of the company is manageable.
However the reasons why I would not be subscribing to the issue are:
1. Boring Annual report: As Warren Buffet once said for any small company annual report is a wonderful advertising issue. It allows the board and the management to explain its policies, give the vision, mission and road map and set hopes. If the investor believe that the company is going to the right path and believe in it, they are patient with the company. This confidence allows the management to take long term strategic decisions which help in creating shareholder value.
Since I did not enjoy reading the STFC’s annual report, I wonder if it will be worth investing in the company. Please do remember that equity holders always have an easy exit options, while the bond/debenture holder are stuck with the company for 5 years.
2. Vehicle Finance: Several banks had problems in controlling their NPA and some of them have even quit/limited their exposure in vehicle finance. This raises a question why would I live to lend money to someone who is solely concentrated in vehicle finance.
3. Group performance: Shriram does not have a stellar track record. One of its group company Shriram Finance has stopped quoting, and rest are doing moderately ok.
Hence in spite of the fact that I have some free cash (which I intend to move from low interest FD to a bond), I am not subscribing to the issue.
Disclaimer: I am no financial analyst