Public Issue by Shriram Transport Finance Company Limited, (Companyor & Issuer) of Secured Non-Convertible Debentures, (NCDs & Issue), aggregating upto Rs. 50,000 lakhs with an option to retain over-subscription upto Rs. 50,000 lakhs for issuance of additional NCDs, hereinafter referred to as the .
The subscription list for the Issue shall remain open for subscription at the commencement of banking hours and shall close at the close of banking hours on the dates indicated below or earlier or on such date, upto 30 days from the date of opening of the Issue, as may be decided at the discretion of the Board of Directors or any committee of our Company subject to necessary approvals
(‘AA (ind)’ by Fitch) This rating reflects STFC’s dominance in pre-owned commercial vehicle (PCV) finance in India, stable profitability and asset quality, as well as high industry concentration and limited financial flexibility compared to commercial banks. While STFC recorded considerable portfolio growth (84% year on year) in FY08, with controlled credit losses and operating costs, net interest margin (NIM) declined (FY08: 7.74%, FY07:9.57%) as higher borrowing costs were absorbed. RoA however remained strong due to rapid growth in income from securitised/bilaterally assigned receivables (which is amortised over the remaining life of the asset) and could come under stress if securitisation volumes decline. While the company expects to improve its fee income streams as it rolls out sale of general insurance products across its network, they are unlikely to significantly support RoA in the next 12-18 months. STFC’s extensive market knowledge and relationship-based credit processes, where recovery responsibility vests with originating officers, have helped in containing credit losses through cycles. That said, a significant part of the portfolio has been originated in period of high growth and remains unseasoned. Despite strong profitability, portfolio growth at FY08 levels could strain STFC’s leverage ratios (total debt/equity ratio: 7.65X in Q109). In this situation, given its lower financial flexibility compared with banks, equity infusions beyond those planned (INR2.16bn warrant conversions by June 09) may be necessary to keep its credit profile from deteriorating.
Fitch notes that the company’s recent decision of not deducting credit enhancements for bilateral loan assignments from capital, which it earlier did, has released INR 5.64 billion in capital. This contributed more than three percentage points to the capital adequacy improvement in Q109 (CAR 15.60% in Q109, 12.87% in FY08). High reliance on bank funding and securitisation (FY08: over 90% of borrowings) could constrain growth if counterparties decide to reduce exposure. Given its rapid growth plans, STFC will need to diversify its funding sources to avoid any limitation imposed by banks’ single party exposure norms. STFC’s liability tenors (close to 30 months) are well matched with its asset tenors (33-36 months). Traditionally, unused bank lines and loan sell-downs have supported liquidity (most of its assets would enjoy priority sector classification with banks). In recent weeks the company has been building up its liquid investment book as a cushion.
(AA+’ by CARE) Pursuant to a letter dated June 15, 2009 CARE has rated the Issue “CARE AA+”. This rating indicates high safety for timely servicing of debt obligations and very low credit risk. The rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The ratings may be subject to revision or withdrawal or suspension at any time by the assigning rating agency and each should be evaluated independently of any other rating. The ratings obtained are subject to revision at any point of time in the future. The rating agencies have a right to suspend, withdraw the rating at any time on the basis of new information, etc. Set out below is the rating rationale adopted by
Care The rating factors in STFC’s dominant position and almost three decades of experience in the pre-owned commercial vehicle (CV) financing segment, its overall healthy profitability parameters, its strong resource raising capabilities, and its proactive and experienced management The rating is however constrained by STFC’s concentration in a single asset class and the underlying industry risk linked with its target customer segment of Small Truck Operators, which is relatively more vulnerable to an economic downturn. STFC’s ability to maintain the asset quality of its portfolio, which has grown rapidly in last two-three years, in a scenario of economic slowdown, timely infusion of additional capital to fuel growth and maintaining its spreads would remain key rating sensitivities.