Issue Details

While Dewan Housing Finance Corp. Ltd (DHFL) has been frequently taking resort to Privately placed NCD issues, this is the s first-ever public issue of secured NCDs from the company. The Issue is for a total amount of Rs.1,000 crore, with an option to retain over subscription up to Rs.4,000 crore. 30% of the issue i.e. with a cap of Rs. 1200 crore  is reserved for the retail.

Issue opens : Opening on Wednesday, August 3, 2016  – First come First basis
Lead Managers  : Edelweiss Financial Services  & Others
Rating  :  CARE AAA by CARE BWR AAA, Outlook: Stable by Brickwork

About the Company : Dewan Housing Finance Corporation Limited (DHFL) is a deposit-taking housing finance company registered with the NHB and focused on providing financing products for the Low and Middle income  segment in India primarily in Tier II and Tier III cities and towns.
DHFL have been active in the housing finance sector in India since 1984. DHFL provides finance for the purchase, self-construction, improvement and extension of homes, new and resalable flats, commercial properties and land. It also provides certain categories of non-housing loans including loans for commercial property, medical equipment, and for plant and machinery.  DHFL has a robust marketing and distribution network, with a presence across 349 locations including 182 branches, 146 service centers, 18 circle/ cluster offices, 2 disbursement hubs and one collection centre, throughout India as at June 30, 2016.
To broaden the customer base DHFL has entered into tie-ups with certain Banks as well. DHFL’s gross NPAs as %  of loan book was 0.93% and net NPAs were  0.58%. on 31/3/16. DHFL’s loan book stood at Rs 61,775.02 crore.

Offer of NCDS

Series Series I II III IV V
Interest type Interest type Fixed Fixed Fixed Fixed Fixed
Tenor Tenor 3 Years 5 Years 10 Years 3 Years 5 Years
Frequency of Interest Payment Frequency of Interest Payment Monthly Monthly Monthly Annual Annual
Category I & Category II Category I & Category II 8.74% 8.74% 8.74% 9.10% 9.10%
Category III & Category IV Category III & Category IV 8.83% 8.88% 8.935% 9.20% 9.25%
Series VI VII VIII IX X
Interest type Fixed Fixed(C) Fixed(C) Fixed(C) Floating
Tenor 10 Years 3 Years 5 Years 10 Years 3 Years
Frequency of Interest Payment Annual NA NA NA Annual
Category I & Category II 9.10% 9.10% 9.10% 9.10% 9.10% *
Category III & Category IV 9.30% 9.20% 9.25% 9.30% 9.20%*

The most popular NCD of these types is the series with monthly interest and annual interest . Others are not traded frequently.  Series VII to IX are cumulative. This offer can be compared with some other popular & frequently traded NCDs. Series VI appear attractive for those seeking annual interest and Series IV & V  for those looking for annual interest option for a shorter period. Setries III is for monthly income.

NCD Series Rating Bond Type Coupon rate YTM at LTP (%) Face Value Price Volume
ECLFINANCE N5 AA Monthly 12.00 9.2 1,000 1,099 24
EHFLNCD N6 AA Annual 10.00 1,000 999 21,413
EHFLNCD N5 AA monthly 9.57 9.3 1,000 1,017 1,111
MMFSL 26A AAA Annual 9.00 8.8 1,000 1,020 3,84,409

* For the 1st year and then subject to annual  change based on Reference CPI for the 2nd and 3rd years.

The Company is offering Series 10 NCDs which carries floating interest rate based on Reference CPI plus applicable spread to various Categories of Investors. The specified spread shall be 4.08% p.a. for Category I Investors (i.e. QIBs) and Category II Investors (i.e.

Corporates) and shall be 4.18% p.a. for Category III Investors (i.e. HNIs) and Category IV Investors (i.e. Retail Investors). Given good possibility of lower rate scenario, investors may prefer fixed interest options.

Assessment:

  • The Bonds are rated AAA, which ensure a high degree of safety.
  • Past issues by MMFSL was a success and wit a coupon rate of 9% the NCD listed a very niominal premium and has given some capital gain to the investors.
  • AAA rated MMFSL NCDS trade in high volumes & are liquid. Given the issue size of DHFL, good liquidity is expected.
  • With upfront brokerage from brokers in range of 0.5-1%, this issue can become slightly better in terms of yield than the yield on listed bonds.
  • Issue is good for people who fall in zero tax bracket or 10% tend bracket. There after post tax returns are poor.
  • The issue which is AAA seems to offer only slightly lower return eturn as AA rated ECL finance N5 popular NCD (monthly interest 12%, YTM 9.2)
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