That is what this “investment opportunity” from India Infoline offers. This dubious fixed income proposal is for those who have nerves of steel and money to burn

One of our readers sent me an interesting investment proposal, which he received from India Infoline. It involves placing money with a Delhi-based developer of properties by the name of Pratibha Impex. The company will pay interest at 18% per annum (p.a.) with quarterly payouts in Year 1 and monthly payouts in Year 2. The principal is proposed to be repaid in 12 monthly instalments after completion of one year. The marketing document tells you that you get a yield of 19.4%, which means that if you were to reinvest all your receipts at 18% p.a., the effective return would be 19.4%. The minimum investment size is Rs.35 lakh.
 

Many investors may fall for the high yield, without realising the pitfalls. Here are the many problems with the issue:
 

• • The total amount proposed to be raised is just Rs19 crore. And the caveat is that there will not be more than 49 investors. This is to make sure that that it does not become a ‘public’ issue and remains a ‘private’ placement, thus bypassing the SEBI registration requirements.
• • There is NO credit rating. The debentures are ‘secured’ by a piece of land at Noida, which according to IIFL, amounts to twice the total debenture amount, at current market prices. IDBI Trusteeship Services P Ltd is the Trustee for the debenture holders. There is a corporate guarantee by the issuer as well as personal guarantees of promoters.
   
• • The allotment will be made in the form of physical certificates and an endeavour will be made to dematerialise it within 30 days. There will be NO listing.
   
• • The investor has to open accounts with IIFL—demat, ‘advisory’ account, trading account, etc.
   
• • You cannot know enough about the promoters or their business. I could not locate any website through Google or any reference to their projects. One of the promoters is a governing member of CREDAI. The presentation mentions that the company is 25-year old, has developed 7 million square feet and has Rs33 billion worth of projects under execution. It is also stated that the company has an operational hotel managed by the Radisson group. They are also stated to have interests in hospitality, healthcare, corporate spaces and facility management.
   
• • There is no mention about the total loans of the group. We do not have an idea as to why a company that has Rs3,300 crore of projects under development is trying to raise a measly sum of Rs19 crore through a convoluted private placement route at a high cost.
   
• • The cover page mentions it as a primary issue and the inside page refers to it as a ‘secondary’ market transaction. Does it mean that IIFL or someone else will take it from the issuer at a ‘discount’ and issue it to the investor at par? The presentation mentions no ‘fees’ but the yield of 19.4% is qualified by ‘before fees’. So who is paying/receiving the fees?
   
• • Since it is an unlisted debenture, there would be TDS. No mention about this in the presentation.

Still tempted? Remember that liquidity will be zero, so no exit till the end. Given the changes that are happening in the real estate sector, it will become more and more difficult for the real estate sector to manage cash flows. From a business risk perspective, conservative investors would be better off giving this a miss. This is for those with nerves of steel and money to burn.