tata capital ncd

The five-year secured non-convertible debentures (NCDs) offered by Tata Capital, a non-banking finance subsidiary of Tata Sons Ltd., may be a good investment option. The NCDs, with interest rates of 11-12 per cent under four options, offer superior returns compared to bank fixed deposits, though they are riskier. Interest rates on five-year bank deposits now range between 8.25 per cent and 10.25 per cent.
Investors should evaluate the NCDs in the light of the fact that they allow locking into an attractive yield of 12 per cent for a five-year period (assuming the put/call options are not exercised), even as returns on most other fixed-income options are set to decline sharply.

The risks linked with the offer stem from the challenges associated with the NBFC business and the relatively short track record of Tata Capital. However, this credit risk is partly mitigated by the security offered (fixed assets and future receivables) and the proposal to create a debenture redemption reserve towards maturity. The offer is rated LAA+ by ICRA, which is among the higher investment grade ratings.

The issue will be in de-materialised mode and listed in the NSE corporate bond market. NCD holders can even trade in these debentures in the secondary market; there is liquidity risk for premature encashment as the bond market is relatively illiquid.

Offer Closes 17th Febuary