Tata Capital Limited has passed a resolution to reduce the coupon rate for 5 year Non-Convertible Secured Redeemable Debentures from 12% to 10.50%. The resolution has been passed in a General Meeting held on15 February 2012. The decision to reduce the coupon rate came with the consistent trend of reducing rate cut in repo and reverse repo rate by RBI. The investors were anticipating this rate cut over some period of time because when the NCD issue came from Tata Capital Ltd, the market interest on deposits were almost at the peak.
Tata Capital Limited issued 5 year Non-Convertible Secured Redeemable Debentures aggregating Rs.1, 500 crore in pursuance to the company’s prospectus dated 21 January 2009 at a time when the prevailing interest rate on fixed deposit was in an ascending mode due to the RBI policy on reverse repo rate hike from 3.25% to 8.50% as a measure to curb indefatigably high inflation. It was really a time when money wasn’t available cheap for companies.
However, the repo rate hike stopped in December 2012 when RBI, being worried over the slow growth rate due to higher cost of fund, decided to reverse the cycle by reducing the reverse repo rate. Consequently, the Tata Capital Ltd put a vote on 15 February 2012 at a General Meeting to curb the coupon rate to 10.50% from the previous 12.00%.
Tata Capital was the first company in a long time after the credit crisis in 2008 to issue Nonconvertible Debenture in 2009. After the 2008 credit crisis, money was not easily available in the market. The issue, since it offered a higher than the market interest rate was an instant hit.
Tata Capital NCD Current Price / Listing Price
The issue is scheduled to be redeemed after 60 months (which is 5 March 2014) from the date of allotment. Investors, other than under quarterly interest payment option, if so desires, can exercise the put/call option at the end of 36 months. The investors under quarterly interest payment option can exercise their put/call option after the expiry of 42 months.
The face value of the NCDs is Rs 1,000 each. The issue is currently traded at Rs 1013 and the one year high and low price for this secured redeemable debenture as on 30 June 2012 are Rs 1078 & Rs. 860 respectively.
Tata Capital Secured Non Convertible Debentures Put Option
Though the Tata Capital NCD had tenure of 5 years from the date of issue, it came out with a Put/Option call after 3 years from the date of issue. In simple term a “Put Option” is an option offered to the investors to redeem their investment after certain period of time at a certain rate. On the other hand a “Call Option” empowers the issuing company to call back the Non Convertible Debentures and redeem or repay the money to the investors.
The issue came with 4 options on interest payable: (a) monthly, (b) quarterly, (c) annually (d) cumulative. The documents of the issue permits the company to modify the rate of interest payable to the investors if approved by at least three fourth consent (75% vote) in writing, passed through a special resolution, from the concerned NCD holders. This leaves the investors with two options- either continue to receive interest at the revised rate or get back whole of his investment with earlier (higher) interest and exit.
The public issue of Tata Capital NCD was opened on 24 February 2009. The Non Convertible Debentures are listed on the cash segment of the National Stock Exchange. Interested investors can invest through registered brokers at NSE on the prevailing market price.
|Option||Interest Payable||Revised Rate (per annum)||Earlier Interest Rate (per annum)||Effective Date For New Coupon Rate|
|1||Monthly||9.75%||11.00%||6 March 2012|
|2||Quarterly||9.75%||11.25%||6 September 2012|
|3||Annually||10.50||12.00%||6 March 2012|
|4||Cumulative||10.50 Compounded annually||12.00%||6 March 2012|
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