Adopt caution when investing in IndiGrid Trust’s NCD offering -

Adopt caution when investing in IndiGrid Trust’s NCD offering


India Grid Trust (IndiGrid Trust), a power sector infrastructure investment trust (InvIT), will launch its 1,000 crore non-convertible debenture (NCD) on Wednesday. The AAA-rated issue is offering an interest rate up to 8.21%.

While the issue is lucrative in terms of ratings and returns, investors should be careful regarding NCDs, say experts.

The company has kept the base size of the issue at 100 crore with an option to retain oversubscription of up to 900 crore. The bonds will be issued for tenures of three, five, seven and 10 years and investors will get fixed income, either quarterly or yearly. The coupon rate being offered is in the range of 6.75% to 8.21%.

The three-year option will earn 6.75% return, 7.6% for the five-year option, 7.9% for the seven-year option and 8.21% for 10 years. In comparison, NCDs by non-banking financial companies such as LIC Housing Finance, ICICI Home Finance and HDFC offer interest in the range of 5% to 6%.

The issue has been rated AAA with a stable outlook by Crisil Ltd and India Ratings, which is the highest rating for an investment instrument. The allocation to the NCDs, proposed to be listed on NSE and BSE, will be done on a first-come, first-serve basis.

A key factor that works in favour of the company is its sponsors. IndiGrid, which is India’s first listed power sector InvIT, is sponsored by KKR and Sterlite Power.

“Yes, it is an AAA-rated issue, but in the past as well, such highly rated firms have created issues for investors. Since it is in the power sector, the company might come across tough times. Investors need to adopt a cautious stance,” said Harshad Chetanwala, a Sebi-registered investment adviser and co-founder of MyWealthGrowth.

Investors must also be mindful of taxation, as interest earned on these NCDs is taxed at the income tax slab rate.

Mrin Agarwal, founder, Finsafe India Pvt. Ltd, doesn’t recommend NCDs to investors.

“NCDs are fully taxable. On a five-year basis, 7.60% return is just less than a percentage point higher than what you get in a post office fixed deposit,” said Agarwal. “In my opinion, dynamic debt funds are a better option, as in NCDs there is a default as well as concentration risk. IndiGrid has done well and has good promoters, but from the investors’ point of view, it doesn’t make sense as returns are fully taxable, and the capital risk is there.”

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