NCD: Fixed income investors can take small exposure to IFCI’s NCDs: Analysts

Investors seeking double-digit returns in the fixed income space could consider a small investment in the non-convertible debentures (NCD) of IFCI Ltd, offering yields of 11 per cent.

“The government has a 56 per cent holding in the company and has been giving timely support that is comforting for investors despite the weak rating of BBB-,” says Vikram Dalal, managing director, Synergee Capital.

As a sovereign-owned entity, IFCI has received equity capital from the Centre in the past. It last received Rs 100 crore by way of equity capital in 2018, increasing government shareholding in the financier to 56.42 per cent from 55.53 per cent as on December 31, 2017.

Given an environment where traditional instruments, like fixed deposits of the State Bank of India, are yielding just 6.25 per cent, the IFCI secured NCDs offer an additional 475 basis points.

Two series of IFCI bonds paying an annual interest are recommended by wealth managers to investors. The IFCI -NH series trades on the National Stock Exchange at a price of Rs 960.5; it pays an annual interest of 9.9 per cent every year in December and matures on December 1, 2024, yielding 11.14 per cent. IFCI -NL trades at a price of Rs 1,025, with an annual interest of 9.4 per cent every year in February and matures on 13 February 2025, giving investors a yield of 10.9 per cent.

To be sure, some financial planners believe that given the current environment, conservative investors with no appetite for risk should stay away.

“The rating of BBB- from ICRA and weakening financials do not inspire confidence in such an environment,” says Jignesh Shah, founder, Capital Advisors.

A note by ICRA says the ratings continue to be supported by the majority GoI ownership with demonstrated capital support in the past.

It adds that given the sizeable debt levels in relation to standard advances and the value of non-core investments, IFCI will need sizeable capital infusion to improve its solvency profile. Further, given the large repayment obligations in the coming years, it will need to divest its non-core assets continuously, step up NPA recoveries, and reduce its standard advances to ensure timely repayments.

While infusion of Rs 200 crore was announced in December 2018 and approved in the Union Budget for FY20, the money is yet to be invested.