dhfl

(updated 30/8/16)

Day 2 : Even as retail portion considering the green shoe option has not been fully subscribed, the issue has closed today.

Day 1:  Issue has been oversubscribed on overall basis but retail subscription stood at .63% only and this may take some days to come and hence issue could remain open.

Category issue size in cr subscription  x
I (Institutional ) 30% 3,000 2.08
ll (Corporates) 10% 1,000 1.19
Ill (Individual -HNI) 30% 3,000 1.11
IV (lndividual -Retail) 30% 3,000 0.63
Total 10,000 1.26

About the issue

Dewan Housing Finance Corp. Ltd (DHFL)  is coming with second tranche of NCD public issue of size Rs. 10000 crore. The issue  opens  on 29th August 2016. Indiabulls and SREI are expected to follow in coming days.

While Dewan Housing Finance Corp. Ltd (DHFL) has been frequently taking resort to Privately placed NCD issues, it tasted huge success with its maiden Public issue of  secured NCDs for  Rs.1,000 crore, with an option to retain over subscription up to Rs.4,000 crore. Out of this 1200 crore was reserved  for retail .T he company’s public offer for these bonds saw a demand book for approx Rs 19,000 crore.

Now  DHFL sensing the huge liquidity in the system and excellent response to its Tranche I of Public NCD, has  lost no time in coming out with Tranche II of much bigger size. The company is agreesively going for these issues as it  aims to trim bank borrowings to 30-35% by FY17 end. The proceeds of the debenture issue will be used for repaying part of the high-cost debt and also for business expansion. DHFL had a loan exposure of around Rs 32,750 crore while DHFL’s total loans as on 30th June 2016 stood at approx  63,000 crore. Out of these s 52% was bank borrowing. Post its Rs 4,000-crore NCD issue, this had come down to about 46%. DFHL now aims to bring this further down to about 35% in about two years, its officials said. Together the two debt issues will help DHFL to bring down its cost of funds by about 20-25 basis points, against the current level of 9.45-9.5 per cent.

Issue Details:

Issue Size:  Base Issue Size of Rs. 2,000 crore and an option to retain oversubscription up to Rs. 8,000 crore. Total Size is 10000 cr, 30% i.e. Rs. 3000 cr is  reserved for retail.

Issue Date :  Monday, August 29, 2016 –  Monday, September 12, 2016  – First come First basis
Lead Managers :  YES Securities (India) Limited , Edelweiss Financial Services Limited, Axis Bank Limited, A. K. Capital Services Limited, ICICI Bank Limited, IndusInd Bank Limited, IIFL Holdings Limited, SBI Capital Markets Limited and Trust Investment Advisors Private Limited.

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 centres, 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. DHFL has been growing consistently at a steady pace.

DHFL has an joint venture agreement with Prudential Financial, Inc. and the company holds 50% equity stake in DHFL Pramerica Life Insurance Company Pvt Ltd.

Management commentary on the Issue makes it clear that DHFL wants to tap on the response to its first issue & liquid available in the system :  Kapil Wadhawan, CMD, DHFL commenting on the issue said “DHFL aims to channelize its credit flow to increase home ownership in the country in the context of the Government’s ‘Affordable Housing for All’ agenda. With the Government taking several steps to grant housing finance companies better supply of funds for the low-cost housing sector, DHFL is tapping various funding sources innovatively at optimal cost. Our first NCD Public Issue set new benchmarks in the housing finance sector and our forthcoming follow on Issue will seek to replicate the aggressive penetrative marketing to tap the pool of liquidity available in the market. While reducing our total cost of borrowing, this Issue will establish a strong yield curve for DHFL instruments in the market. Our objective is to continue to service the needs of the LMI segment while growing profitability and enhancing stakeholder value.”

NCD Offer Details:

The NCD offer has basic annual interest options only and has done away with monthly and cumulative options bringing in simplicity which is good from liquidity point of view.

Category / Tenure 3 years 5 years 7 years
Category III & IV
(retail & HNI)
9.10% p.a. 9.15% p.a. 9.25 % p.a.
Category I & II
(QIBs & Corporates)
9.05% p.a 9.05% p.a. 9.05 % p.a.

 Interest on Application Money is at 8.00% p.a. and Interest on Refunded Money is at 6.00%

Details & Performance of other recent Public NCD Issues :

 

MMFSL EHFL DHFL
Coupon Rate 9 10 9.3
Interest Frequency Annual Annual Annual
Rating AAA AA AAA
FV 1000 1000 1000
FV  with accrued interest 1019.73 1010.14 1002.55
LTP ( Last Traded Price) 1023.04 1013.96 1,005.00
YTM 8.938 9.931 9.275
ISIN INE774D08MA6 INE530L07228 INE202B07HV0
NSE  Code EHFLNCD N6 DHFL NC
BSE Code 935752 935788 935814
Security  ID 9MMFSL26 10EHFL26 930DHFL26B
Issue Dt 06-Jun-16 19-07-2016 16-08-2016
interest due date 06-Jun-17 19-07-2017 16-08-2017
Redemption  date 06-Jun-26 19-07-2026 16-08-2026

This table indicates that recent public NCD issues have yielded very low capital gains.

Assessment:

  • The Bonds are rated AAA, which ensure a high degree of safety.
  • Past NCD Public issue by DHFL was a success and saw huge subscriptions.
  • Given the issue size of DHFL, good liquidity is expected.
  • The interest rates are a tad lower than the Tranche-I NCD with best interest options stands at 9.25 % for 7 years vis a vis earlier 9.3% for 10 years.
  • Suitable only for investors in zero or low tax bracket
  • Chances of immediate listing gains are poor given the size of issue & very less capital gains in tranche I NCD issue
  • Except for benefiting from upfront brokerage, chances of making easy money in these type of NCD issues have gone down considerably as Bond yields which were earlier falling down continuously have shown signs of stabilisation.
  • Only investors who get substantial upfront brokerage (1%) can potentially benefit from the issue if it is able to list at marginal premium or around par on listing day or few days after that . A portion of demand for these issues is coming from these sources.
  • Several NCD issues are expected in the market which could cap capital appreciation in listed prices of NCDs.
  • Investors in any case should not expect better interest rates in future issues as well and they could be around same rates except for those with lower rating.

 

 

 

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