The latest company to come up with a 80CCF infrastructure bond issue is Srei Infrastructure Finance Ltd. and their issue opened on 31st December 2011 and will close on January 31 2012.
They have four options to choose from and the bond issue has got a rating of CARE AA from CARE which indicates a high degree of safety.
The main difference in the terms of this bond issue is that the buyback period is 5 years for all 4 options. So, you have two options with a term of 10 years, and then two more with a term of 15 years, but then all of them have an option to exercise buyback at the end of 5 years.
If you look at the REC infrastructure bond issue – you will see that the rate of interest is similar but the 15 year bond issue has a buyback period of 7 years instead of 5. (In the REC issue 10 year bond had 8.95% and 15 year had 9.15%)
Now, the bonds with a 10 year term have a rate of interest of 8.90% and the bonds with a 15 year term have a rate of interest of 9.15% but if you have the option to exercise buyback for all of them at the end of 5 years – then why choose the 10 year option at all?
For someone interested in this bond issue, I think it makes sense to prefer the 15 year series over the 10 year one, take advantage of the extra rate of interest and then exercise buyback at the end of 5 years. The only issue with this is I wasn’t able to find out how exactly the buyback works.
Srei Infrastructure has said in the prospectus that you have to notify them them about the buyback between six and nine months prior to the buyback date but how does one keep a track of these dates?
Do they send out a letter asking you for your preference or what other method does one follow? If they don’t send out a letter then it’s quite likely that a lot of people simply fail to keep track of when to send them the mail about the buyback.
If anyone can offer more clarity on this then please do leave a comment.
Here are some of the other important terms of the Srei infrastructure bonds.
| Series |
1 |
2 |
3 |
4 |
| Face Value |
Rs. 1,000 |
Rs. 1,000 |
Rs. 1,000 |
Rs. 1,000 |
| Interest Payment |
Annual |
Cumulative |
Annual |
Cumulative |
| Interest Rate |
8.90% |
8.90% compounded annually |
9.15% |
9.15% compounded annually |
| Tenor |
10 years |
10 years |
15 years |
15 years |
| Buyback option |
5 years |
5 years |
5 years |
5 years |
| Buyback amount |
Rs. 1,000 |
Rs. 1,531.58 |
Rs. 1,000 |
Rs. 1,549.24 |
| Buyback intimation period |
The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date |
The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date |
The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date |
The period beginning not more than nine months prior to the Buyback Date and ending not later than six months prior to the Buyback Date |
This is not a government company which is a question that inevitably comes up in comments, and this post has the list of all other infrastructure bonds that are currently open.
Isn’t it the case that if an investor forgot to exercise the buyback option by the buyback date, he/she can still sell the bonds in the stock exchanges as they will get listed a few days from the buyback date? The SREI website isn’t working so I couldn’t get any info. on listing.
Yes, you could, provided you took it in the Demat mode in the first place, and the price is trading above the issue price. Else you might have to sell at a loss.
Hi Manshu,
This is what IFCI Infra Bond quoted in their prospectus on Buy Back option..
“The investors, who opt and are allotted bonds with buyback facility and wish to exit through this facility, shall have to apply for buy back by writing to the company (“Early Redemption Noticeâ€) of his intention to redeem all the Bonds held by him under the buy back option. Such Early Redemption Notice from the Bondholder should reach the Registrar or the Company between August 16 to August 31, starting from year 2015 till 2019 ( Early Redemption Dateâ€) for redeeming of Bonds in that particular year.
The Bonds will be redeemed within 15 days, from the close of the Early Redemption Date, i.e on September 15,. Partial buyback of the bonds held under the buyback option shall not be permissible.”
Since buy back process and period is well indicated the registrar may not sent any notices.However, the information should float on exchanges and company websites.
Thanks – any idea about the Srei issue?
Well, The company will send the letter to the Bondholders for buyback.
Its written on Pg-3 of Shelf Prospectus of SREI, available on their website.
It says: “Buyback Intimation Request: The letter to be sent by our Company to the Bondholders intimating them about the buyback of the Tranche 1 Bonds.”
This is in the section which has the definitions right? If so, then is there any other detail after this in the document. I read this, and it doesn’t seem like enough information to definitively say that they are going to send out notices.
Thanks.
Is buyback option for other Infra bonds clear ? I was looking for information on the same on IDFC infra bonds as well.
I think in IDFC’s case they had that option on the application form itself and then some other documents also specified this in some way or the other.
It is possible that this info in present in one of the Srei docs but I just didn’t find it.