NHPC 8.92% Tax-Free Bonds – October 2013 Issue

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at skukreja@investitude.co.in

NHPC Limited (formerly National Hydroelectric Power Corporation) will launch its issue of tax-free bonds from October 18th, the coming Friday. Coupon rates of NHPC are absolutely same as they are offered by PFC in its issue which is getting open for subscription from today i.e 8.92% per annum for 20 years, 8.79% per annum for 15 years and 8.43% per annum for 10 years.

NHPC has decided to run this issue till November 11th, the same date on which the PFC issue is also slated to get closed. But, in case of oversubscription or undersubscription, the company has the authority to preclose the issue or extend the issue closing date.

Size of the Issue – The base size of the issue is Rs. 500 crore and there is a green-shoe option with the company to retain oversubscription of an additional Rs. 500 crore, thus making this issue of Rs. 1,000 crore the smallest of all the tax-free bond issues launched this financial year so far.

Rs. 1,000 crore is the total amount NHPC has been authorised to raise from tax-free bonds this financial year. I think NHPC will not be required to do any private placement to raise money from tax-free bonds as there is enough appetite for its high yielding bonds in the market.

Red Signal again for NRIs – Like IIFCL did that first, NHPC has also decided not to offer these bonds to the non-resident Indians (NRIs) and qualified foreign investors (QFIs). So, if any of the NRIs wants to invest in the tax-free bonds yielding as high as 8.92%, then he/she will have to opt for the PFC issue.

Rating of the Issue – Like PFC issue, NHPC issue is also ‘AAA’ rated. ICRA, CARE and India Ratings have assigned ‘AAA’ rating to this issue, which is their highest rating to any debt issue. Also, the bonds will be ‘Secured’ by a pari passu first charge on specific assets of the company, with an asset cover of one time of the total outstanding amount of bonds.

Listing – NHPC has become the first company to propose and obtain the necessary approval to get its tax-free bonds listed on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) this financial year.

Investors can apply for these bonds either in demat form or in physical form, as per their choice. The company will get the bonds allotted and listed within 12 working days from the issue closing date.

No Lock-in Period – As these bonds get traded on the stock exchanges and do not provide any tax deduction u/s 80CCF or 54EC, there is no lock-in period with these bonds. The investors are allowed to sell these bonds at the prevailing market rate whenever they want to do so. There are no charges involved with premature encashment and there will not be any tax penalty payable to the tax authorities.

No TDS – As these are tax-free bonds, there is no question of TDS getting deducted, whether you take them in physical form or demat form.

Interest Payment Date & Record Date – NHPC has decided to fix April 1, 2014 as the first interest payment date. For subsequent years also, interest will be paid on April 1st every year. The record date for payment of interest or the maturity amount will be 15 days prior to the date on which such amount is payable.

Categories of Investors & Allocation Ratio – The investors again have been classified in the following four categories and each category has certain percentage of the issue reserved for the allotment:

  • Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved
  • Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved
  • Category III – High Networth Individuals (HNIs) including HUFs – 25% of the issue is reserved
  • Category IV – Resident Indian Individuals (RIIs) including HUFs – 40% of the issue is reserved

Allotment on FCFS Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Minimum & Maximum Investment – Investors are required to apply for a minimum of five bonds of Rs. 1,000 face value each, thus making Rs. 5,000 as the minimum investment to be made. An applicant may choose to apply for these bonds of the same series or across different series also.

Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest on Application Money & Refund – NHPC will pay interest to the successful allottees on their application money at the applicable coupon rates, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Though the issue is getting launched four days after the PFC issue, I think it is very important for the investors, who are planning to invest in PFC and NHPC both or only in NHPC, to first go for the NHPC issue as soon as possible because the issue size in itself is relatively much smaller. Retail investors will have only Rs. 400 crore to be invested in this issue as compared to Rs. 1,550.36 crore to be invested in the PFC issue.

Also, I think the spillover portion of the non-retail investors is unlikely to fall into retail investors’ kitty this time around. As compared to the PFC issue, I think there is a high probability that this issue will get a better response from the non-retail investors also, as they would like to diversify their investments across different companies and this is the first time NHPC has been issuing these tax-free bonds through a public issue.

That is why, I think this issue will get preclosed much earlier than its official closing date of November 11th. I am expecting this issue to get oversubscribed very soon and get closed in October itself.

Application Form of NHPC Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NHPC tax-free bonds, you can contact me at +919811797407

118 thoughts on “NHPC 8.92% Tax-Free Bonds – October 2013 Issue”

  1. Hi Shiv,

    I meant that is there any major issue if someone delays in surrendering the old certificates ?


  2. Hi Shiv
    I recd a letter from nhpc/karvy that they are reissuing these certificates issued in 2013 and are asking to surrender old ones by 4th Feb. What happens if we do not surrender, eg someone may be at outstation. Thanks in advance.

  3. these NHPC people/karvy people are really hopeless last year also there was a delay of 12 days & now they have a very nice excuse of public holidays. I think all of the investors should mail to company secretary

  4. I have not yet received the interest on NHPC bonds due on 1 April 15. Can someone please advise who should I contact for this? Is it Karvy?

      1. Thanks Ikjot! Hopefully, it should be on its way for me as well…was thinking of getting in touch with Karvy..but guess should wait for a day or two now…

        1. Yes, I too have got it credited in my dad’s account today morning. I think you should wait till Monday for it to get credited as there have been too many holidays since April beginning.

  5. Hi Shiv,
    Thanks for all the guidance which you provide to all the investors thru` your website.
    I have not received my interest of NHPC tax free bonds. Though I have sent a mail regarding this to the concerned person of Karvy & till now I have not yet received any reply. Is there any other means by which I can make out the status of my interest amount?


    1. Thanks Mohit,
      I think Karvy is the only source through which you can get the required info. I think you should call them at Karvy’s toll free number 1800 3454 001 and get the matter resolved.

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