HNIs lap up Blue Dart's 'bonus' debentures as equity MFs sell

News Clip:The Economic Times, Mumbai

16 December, 2014

Very few fund managers keen to keep co's NCDs as holding debt for a long time is not a fund's mandate

Non-convertible debentures (NCDs) of Blue Dart Express, a courier services provider, have seen hectic activity since their listing late November. The company recently issued bonus debentures to its investors, a deviation from the usual practice of doling out bonus shares.

As part of the scheme, Blue Dart shareholders received three series of NCDs proportionate to the number of shares they held. Fund managers of domestic mutual funds, which own Blue Dart shares, have been selling these debentures on the exchanges, while rich individuals are buying.

These investors aim to hold the NCDs that will fetch them an interest every year till maturity. Once these debentures mature, the holders would receive the principal (face value of the share), too.

For every share held, a Blue Dart shareholder got seven NCDs of Series I carrying 9.5 per cent interest maturing 2019, four NCDs of Series II carrying 9.4 per cent interest maturing in 2018 and three NCDs of Series III carrying 9.3 per cent interest maturing in 2017. Since their listing on November 28 on the BSE, Series I saw 33 lakh NCDs change hands, Series II saw 18.8 lakh NCDs being traded, while Series III saw 16.82 lakh units changing hands. However, there has been no change in price with the debentures trading between Rs 9.8 and Rs 10.20.

Though fund managers are not opposing the bonus debenture issue, many of them are not holding on to it. While some of them have already sold the NCDs, others plan to sell them soon, said two fund managers, who hold Blue Dart in their schemes.

"It adds three more instruments to my scheme, and the proportion of these schemes in the portfolio will be very small," said a fund manager with a domestic mutual fund, who has sold all the three series of these NCDs and booked profits.

Domestic funds houses like Axis, Birla, IDFC, SBI, Tata and UTI own the stock in their portfolio across a number of schemes. Though fund managers have the mandate to hold a small portion of debt in their equity mutual fund portfolio, very few are keen to hold it as holding a debenture for a long time is not really the mandate of an equity mutual fund.

"As and when, liquidity comes in and there is a buyer, we will exit all the three series of these debentures," said another fund manager with a fund, which owns Blue Dart.

With interest rates expected to come down, some distributors suggest investors could accumulate Series III NCDs. "While bank fixed deposits could yield around 8.75-9 per cent, these debentures with a yield of 9.5-9.75 per cent will give you slightly higher returns," said Anup Bhaiya, MD and CEO, Money Honey Financial Services.

Financial experts feel a bonus debenture is a good structure to reward shareholders as it conserves cash. "Issue of bonus debentures does not require an immediate cash payment and postpones the use of cash till the redemption of debentures," said Poonam Gupta, associate professor of New Delhi-based Dyal Singh College.