In a market where new paper has become scarce, the Tata Group has come up with a preference share issue targeting high-end investors.
Tata Capital Financial Services Ltd (TCFSL), the financial services arm of the Tata group, is raising Rs 150 crore through private placement of one million compulsorily redeemable preference shares (CRPS). These shares of face value Rs 1,000 each, are being placed at a premium of Rs 500 per share.
TCFSL, a subsidiary of Tata Capital, is registered as a non-banking finance company (NBFC) with the Reserve Bank of India.
At a minimum subscription of 800 shares, which requires an investment of at least Rs 12 lakh, the placement is largely targeted at high net worth investors.
|Terms of Issue
Instrument: Fully paid up CRPS
Rating: AA+ by Crisil
Face Value: Rs 1,000
Issue price: Rs 1,500
Minimum subscription: 800 shares
Rate of dividend: 12.5 % on face value
Tenure: Seven Years
Issue closes: July 31, 2012
Source: Company documents
The instrument carries an annual dividend of 12.5 per cent. However, this is payable on the face value of the shares. For an investor who subscribes to these at a premium of 50 per cent, the effective return comes down to 8.3 per cent per annum.
An email questionnaire sent to Tata Capital spokesperson on Tuesday did not elicit any response.
According to people familiar with the development, the shares are being sold to the clients of Tata Capital’s wealth management arm. “Invitations by name are sent to individual clients of the wealth advisory. Further, if any third party distributors show any interest, their client lists are taken and individual invitations are sent to them,” said an investor who has received the communication.
According to the terms of the issue reviewed by Business Standard, the fully paid-up CRPS have a tenure of seven years and are given a rating of ‘AA+’ by rating agency Crisil. The issue, which opened on June 30, is scheduled to close on July 31.
The issue also provides for some concessions for Tata employees. The minimum subscription for employees of Tata Capital and its subsidiaries is fixed at 100 shares or Rs 150,000. For employees and directors of other Tata group entities, the minimum subscription amount is 400 shares or Rs 600,000.
Experts point out that being preference shares, investors should keep in mind that they are unsecured and expect near-equity returns from these investments. Unlike investors in debt instruments, preference shareholders are not entitled to dividends in case the company does not make profits in a particular year. Further, in case of liquidation, preference shareholders will be the second last in the queue for payments, just before equity shareholders.
Anil Rego, chief executive officer, Right Horizons, an investment advisory firm said, “Considering the risks, investors will be expecting near-equity returns from such instruments. Something like this should at least give you 15-20 per cent returns per annum. Otherwise, one has better options even within the Tata group instruments, such as bonds of Tata Steel, which give 10-11 per cent. I would go for these.”