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Investing: High Yield, High Risk


The private placement market is a place for amazingly high-risk and low-reward products. Sample this. India Infoline (IIFL) is touting a paper that involves placing money with a Delhi-based developer of properties called Pratibha Impex. The company will pay interest at 18%pa (per annum) 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%; that is, if you were to reinvest all your receipts at 18%pa, the effective return would be 19.4%. The minimum investment size is Rs35 lakh. Many investors may fall for the high yield without realising the pitfalls.

The total amount proposed to be raised is just Rs19 crore, a fraction of the company’s size. Couldn’t it have sourced the money from somewhere else? There is no credit rating. The debentures are ‘secured’ by a piece of land at Noida. There is a corporate guarantee of the issuer as well as personal guarantees of promoters which would be hard to enforce. Since the debenture is unlisted, there would be tax-deducted at source. Remember that liquidity will be zero, so there is no exit until the end of the tenure. In all such cases, while the yield is high, risks are much higher. Lesson: stick to listed and regulated products.
 

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OVL-OIL to buy Videocon stake in Mozambique field for $2.5 billion

The acquisition will be done through a joint venture in which OVL will hold 60% stake while OIL will have the remaining 40%


State-owned Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) will buy Videocon Industries' 10% stake in a giant Mozambique gas field for about $2.5 billion.

 

The acquisition of the stake in Mozambique's offshore Area 1, which may hold as much as 65 trillion cubic feet (tcf) of gas resources, will be done through a joint venture of OVL and OIL, the two firms announced.

 

OVL, the overseas arm of state-owned ONGC will hold 60% stake in the joint venture while OIL will have the remaining 40%.

 

OVL and OIL have signed a definitive agreement with Videocon Mauritius Energy to acquire 100% of (its) shares in Videocon Mozambique Rovuma 1 for $2475 million, the statements said.

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