Wint Wealth, an alternative debt asset platform for retail investors, recently launched ‘Wint Bricks Nov21’ - a senior secured bonds issue from U GROW Capital (Ugrow), a non-banking financial company.

The bonds are offering an attractive 10.50 per cent (XIRR) for a little over a two-year tenure. You can invest as little as ₹10,000 which is a small ticket size for bond investments. The return is particularly enticing when seen in the context of the falling interest rates on bank fixed deposits.

But the higher returns obviously come with commensurate risk. Do your homework before you take the plunge. Here, we highlight the key points about this bond issue.

What bonds are on offer

Co-founded in November 2019 by two financial services industry professionals, Wint Wealth (earlier GrowFix) is a fixed income investment platform for retail investors. Excluding the latest offering, Wint Bricks Nov21, the platform has so far offered seven bond issues totalling ₹100 crore.

The latest one, Wint Bricks Nov21 is a ₹50 crore senior secured bond issue from Ugrow, an NBFC focused on lending to small businesses (more details later). These bonds have been bought by Wint Wealth and other wholesale buyers (or warehousing partners, as they are called) from Ugrow in a primary issue and are now being made available for sale to retail investors on the Wint Wealth platform.

The bonds mature in 27 months and are offering a return (XIRR or extended internal rate of return) of 10.50 per cent. Investors will receive monthly interest on the bonds and will be repaid 33 per cent of their principal every 9 months (see table for details). That one doesn’t have to wait until maturity to receive the entire principal is a positive on the risk front.

Though, as part principal repayments are made, the monthly interest income is bound to go down.

Usually investment returns are indicated in the form of CAGR (compound annual growth rate). But, in case of investments involving multiple inflows / outflows (periodic interest and principal repayment in the case of the Ugrow bonds) at different times throughout the investment period, XIRR and not CAGR provides the correct return calculation.

The Ugrow bonds are ‘senior secured’ which essentially means that they are secured by way of collateral (assets) on which the bondholders have exclusive charge. In this case, the Rs. 50 crore issue has been collateralized by ₹62.5 crore worth of property loans. The bonds are rated A (Positive) by Acuite Ratings.

Any individual with a demat account can buy these bonds either on the Wint Wealth platform or directly through their brokerage account. Even when you invest via the platform, the order is still placed through the broker and executed on the exchange. Note that, there is a temporary halt in the sale of these bonds and these are expected to be available for sale from December 1. These bonds are listed on the BSE and the NSE. Investors are not charged for transactions on the platform.

While the returns are enticing and buying the bonds too appears easy, let these not be the deciding factors for investing in them.

Also read: Nuts and bolts of Retail Direct Gilt account

Multiple risks

While the bond issue is backed by adequate collateral, the issue has a relatively low credit rating of A from Acuite Ratings and calls for caution. The highest-rated safest bonds are assigned a AAA rating.

Ugrow is a relatively new NBFC specializing in SME lending that began loan disbursements only in January 2019. It had assets under management of only ₹1,933 crore as of September 2021. Sector-wise, light engineering and food processing alone account for 40 per cent of its loan book. While the company’s net NPA (non-performing assets) of 1.8 per cent appears low, this is likely reflecting the impact of loan restructuring (7.2 per cent of its portfolio) undertaken by it in the September 2021 quarter.

When it comes to the collateral, what matters is how liquid it is. In this case, the issue is backed by Ugrow’s property loans. As long as the majority of the borrowers keep servicing their loans, the collateral (property loans) can offer support in the event of any default on the bonds. But, if there were to be a spike in loan defaults, then even though the underlying property can be confiscated, liquidating it to pay off the bondholders can turn out to be a time-consuming process.

Also, while it may be easy to buy the Ugrow bonds now, selling them before maturity may not so, due to lack of sufficient buyers. So, one must be prepared to hold these bonds until maturity.

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