Mercantile Investments & Finance PLC (MI), one of the country’s stronger finance companies, whose Rs. 200 million listed debenture issue opens on Oct. 30 has reduced both the value of the issue as well as the interest rate payable between April and June this year, its prospectus reveals.
The company originally intended offering Rs. 500 million worth of four-year debentures at 11% per annum with a board decision to this effect on April 30, 2014, and Central Bank approval was obtained.
But on June 30, 2014, the board decided that only two million debentures of Rs. 100 each will be issued to raise Rs. 200 million and the interest rate was reduced to 10.5%, the prospectus said.
Analysts said that since corporate listed debentures are tax free, they are particularly advantageous to companies who have otherwise to pay 27% on their interest income as taxes.
"That’s why nearly all these debenture issues are being snapped up on the opening day itself," an analyst explained. "Even issuers without strong fundamentals have no difficulty marketing their debentures."
Several of these issues have been concluded but there is very little trading with investors holding them to maturity and receiving interest, sometimes quarterly, half-yearly or most commonly annually.
Mercantile Investments & Finance is a closely held company founded over 50 years ago by Mr. George Ondaatjie and is largely owned by his family.
Analysts said that MI has a substantial deposit base with funds mobilized generally at a rate above the 10.5% offered for the debentures.
The company originally intended offering Rs. 500 million worth of four-year debentures at 11% per annum with a board decision to this effect on April 30, 2014, and Central Bank approval was obtained.
But on June 30, 2014, the board decided that only two million debentures of Rs. 100 each will be issued to raise Rs. 200 million and the interest rate was reduced to 10.5%, the prospectus said.
Analysts said that since corporate listed debentures are tax free, they are particularly advantageous to companies who have otherwise to pay 27% on their interest income as taxes.
"That’s why nearly all these debenture issues are being snapped up on the opening day itself," an analyst explained. "Even issuers without strong fundamentals have no difficulty marketing their debentures."
Several of these issues have been concluded but there is very little trading with investors holding them to maturity and receiving interest, sometimes quarterly, half-yearly or most commonly annually.
Mercantile Investments & Finance is a closely held company founded over 50 years ago by Mr. George Ondaatjie and is largely owned by his family.
Analysts said that MI has a substantial deposit base with funds mobilized generally at a rate above the 10.5% offered for the debentures.
"With interest rates falling, it is natural that listed corporate debentures will be offered at lower interest,’’ an analyst said. ``MI probably does not need Rs. 500 million now and possibly prefer to watch how the interest rates behave before offering a further tranche.’’
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