BackMotilal Oswal Financial Services is offering up to 9.7% on its latest bond issue. Should you invest?
The issue is secured and redeemable, rated AA/stable by Crisil Ratings and India Ratings.
PremiumMotilal Oswal Financial Services Ltd (MOFSL) is tapping the bond market to raise up to Rs1,000 crore from non-convertible debentures (NCDs). The bond issue, the first of its kind from Motilal Oswal that offers investors interest of up to 9.7%. opened on 23 April and is set to close on 7 May. The issue is secured and redeemable, rated AA/stable by Crisil Ratings and India Ratings.
There are eight series of the NCDs with a tenure of 24 months, 36 months, 60 months, and 120 months offering 8.85%, 9.1%, 9.35% and 9.7%, respectively. The company is offering annual, monthly and at maturity interest options.
At 9.7% interest rate, the offering from a big entity like MOFSL is attractive but retail investors should take a decision based on their tax slab, said Feroze Azeez, deputy CEO, Anand Rathi Wealth. “This 9.7% is a 2.75% spread from government securities, or G-Secs, which is quite aggressive. It's an attractive proposition for those in the lowest tax bracket. However, for those in the 30% tax bracket, taking this concentrated credit risk is not advisable. These investors will get a 100-125 basis point better net of taxes return, which is not worth the risk," he said.
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Retail investors should take note that the highest yield of 9.7% is offered on 10-year tenure, which, experts say, is too long and best be avoided. “Investors should not get attracted to high interest rate long-term debt as anything can go wrong with private companies," said Azeez.
Anshul Gupta, co-founder and CIO, Wint Wealth, said the 2-year, 3-year and 5-year tranches look investible but are better suited for institutional investors and high net worth individuals (HNIs). “For retail investors, small finance banks offering fixed deposits (FDs) with similar yield of 8.85-9.35% are a better option as deposits up to Rs5 lakh are insured. Moreover, your capital will be more liquid in FDs as NCDs hardly have a secondary market," he said. “HNIs invest Rs1 crore or more, so they take the risk of investing in a AA rated NCD in place of a lower rated SFB FD which doesn’t offer a guarantee for higher amounts."
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During the third quarter of financial year 2023, MOFSL’s consolidated operating revenue grew 30% on a year-on-year basis to Rs1,377 crore, whereas consolidated net profit for the same quarter stood at Rs774 crore.
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