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
Has anyone received interest today? It was scheduled for 1st April, I hope we are not being made ‘April fools’ 😉
No interest as yet. But I hope will pop in a day or two.
Today being a bank holiday, I think no interest payments have been made by the banks/companies.
I had applied for the bonds in my & my wife’s name.
I received my bonds in my demat account long back.
My wife doesn’t have a demat account so I had to request for the bonds in a physical form for her. I still haven’t received those.
Do they take so long? If not, whom can I contact?
If you haven’t received the bonds, then you must have received some communication from the company in the form of Allotment Advice. If not, then you need to contact the Registrar for the same with your application number.
Hi Shiv,
Has the company announced it’s annual interest payment date?
Hi Ramesh,
Interest Payment Date for NHPC bonds is April 1st every year.
With the 10 year government bonds crossing 9%, will the next lot of TF bonds provide a better interest rate?
Are any expected in November?
With IIP growth coming at a poor 2%, rupee falling to 63-64 levels and CPI inflation crossing 10% mark once again, there is no scope for any rate cut as of now. In fact, if there is no improvement by next month, RBI will again have to hike its Repo Rate in the December monetary policy.
Macroeconomic data has been consistently poor all this month, so it seems to me now that coupon rates of upcoming tax-free bonds would be fixed at higher levels.
As of now, no new company has filed its Draft Shelf Prospectus for its bonds. So, there is no issue lined up in November. NHB, NTPC & NHAI are expected to launch their issues in December.
http://economictimes.indiatimes.com/markets/bonds/irfc-to-raise-rs-10000-crore-through-issue-of-tax-free-bonds/articleshow/25651064.cms
Seems that IRFC has filed Draft Shelf Prospectus. Even though 10 yr bond yield has crossed 9%, avg bond yield for last 2 weeks is still low. I don’t think IRFC interest rate will be better than PFC/NHPC. IRFC should have filed draft next weeks in order to give better interest rate.
Hi Amit,
As per the notification, it is “two weeks ending on Friday immediately preceding the filing of the final prospectus” and not the “draft shelf prospectus”. As of now, IRFC has filed only draft shelf prospectus. Final prospectus gets filed just a few days prior to the issue opening date. So, I think the coupon rates should be higher with the upcoming bond issues.
Also, IIFCL has announced that they are planning to launch their 2nd tranche of tax-free bonds in the 3rd or 4th week of this month. So, the rates should be higher in that issue as well.
Hi,
I had applied for 100 NHPC bonds. On Friday I saw the money credited back to my account. Was there so much demand that they rejected some applications. Its strange.
Thanks
Hi Ash,
Yes, there was huge demand for this issue and that is why the issue got closed on the 4th day itself. You must have applied for it on the 4th day i.e. October 23rd. Investors, who applied for the issue on October 18th or October 21st, have got full allotment. Investors, who applied for the issue on October 22nd, have got partial allotment.
Hi Shiv,
I went back and checked again. Applied on 22nd. And I did get partial allotment of 18 bonds. Balance money was returned. Not sure how they did the allocation.
Thanks
Hi Ash,
NHPC has allotted 37 bonds to all those investors who had applied for 100 bonds on October 22nd. Did you submit two applications of Rs. 50,000 each or single application of Rs. 1 lakh?
Hi,
Yes it was two applications of 50K. So I guess I got for one application.
Thanks
Yes, you are right Ash.
10 year G-sec yield again close to 9, and market expecting RBI to raise repo again in December. Which are the bonds in pipeline for Nov and Dec?
As of now, I have heard/read about NHB, NTPC & NHAI issuing these bonds sometime in December.
Thanks. It is generating better volume (1961) in BSE now with buy / ask prices of Rs 1011 / 1018. In NSE, the volume is only 510 with buy / ask prices at Rs 1007 / 1014.
Yes, that’s right Raju. These bonds are getting traded with better liquidity on the BSE.
NHPC bonds have got listed today on the BSE & NSE. 8.92% 20-year bonds series has hit a high of Rs. 1,005.90, low of Rs. 1,004.45 and trading at Rs. 1,004.90. Total bonds traded on the NSE are 226 as of now.
It closed at Rs. 1,016.20 on the NSE with 1,644 bonds traded and at Rs. 1,013.05 on the BSE with 5,664 bonds traded.
NHPC tax-free bonds to get listed on the BSE & NSE on November 7th i.e. Thursday.
Here are the BSE & NSE codes for the same:
8.43% 10-year bonds – BSE Code – 961790, NSE Code – N1
8.79% 15-year bonds – BSE Code – 961791, NSE Code – N2
8.92% 20-year bonds – BSE Code – 961792, NSE Code – N3
Deemed date of allotment has been fixed as November 2, 2013. Interest will be paid on April 1st every year.
I also the allotment. Any idea of its listing date? Is it expected to quote at premium because of over subscription or at a discount like Hudco bonds?
Hi Raju,
1. I think it should get listed by Friday or maximum Monday.
2. For these bonds to get a premium, there has to be a large number of interested buyers, paying extra money over & above its face value. Just think about it, if you are to buy these bonds on listing, would you pay a higher price for the same? If not, then you should not expect a premium for your bonds.
I don’t think there is any extraordinary demand for these bonds at this point of time. It got huge response during the offer period as its issue size was relatively smaller at Rs. 1,000 crore. So, I don’t see its price rising to a great extent until inflation & G-Sec yield start falling consistently.
Just got the SMS confirmation from CDSL that the NHPC Bonds have been allocated to my Demat Account.
Great… thanks Amlan !!
Your post is v informative. The only drawback , if any, with these bonds is the long lock-in period. How active is the secondary market for these bonds, should the investor need to encash them before maturity??
Hi Annapurna,
I think you raised this concern earlier as well. First of all, it would be incorrect to state that these bonds have a long “lock-in period”. The fact is that these bonds don’t have any lock-in period. As these bonds are tradable, you can sell them whenever you want.
You may call it a liquidity problem and I agree to it to some extent, but then I would not fully agree with that argument as well. If you are applying for these bonds with big issue sizes and if you are not applying for speculative gains, then there is enough liquidity for a retail investor to cash it out.
It is quite natural that when these bonds are freely available in these kind of initial offers, then there would be very few buyers from the secondary markets. But, it is unfair to state that these bonds do not have liquidity.
I have applied for 107 Bonds / Rs. 1,07,000/= on 22 nd October 2013 and submit my application on the same day 22/10/2013.
But so far the cheque is not presented in to my Bank Account for clearing.
So what should i understand ?
So What i understand is that my application is not consider for allotment of Bonds.
NHPC issue was closed on 23 rd October , and you have written on 23rd
” I don`t think anybody who has put in his/her application to-day[23/10/2013] will get any allotment”
But i have submitted my application on 22 nd October 2013.
And so far i have not received my application form and cheque back.
What is your opinion about this ? How long i have to wait to know the status of my application.
Hi Paresh,
It is unusual that your cheque did not get cleared when you deposited it on October 22nd. You should get it checked from your broker, the collection bank or the Registrar of NHPC why your cheque did not get cleared. Ideally one should get allotment on a proportionate basis if applied on October 22nd.
NHPC Bond issue closed on 23 rd October , so for allotment normally it take 12 working days from the close date , so i think the allotment will be after 10 th November.
Is this right calculation ?
Yes, I think it would be some time on or around 8th November, plus/minus 2 days.
Day 4 (October 23rd) subscription figures:
Category I – Rs. 420 crore as against Rs. 150 crore reserved
Category II – Rs. 622.25 crore as against Rs. 200 crore reserved
Category III – Rs. 403.46 crore as against Rs. 250 crore reserved
Category IV – Rs. 495.07 crore as against Rs. 400 crore reserved
Total Subscription – Rs. 1,940.78 crore as against total issue size of Rs. 1,000 crore
NHPC issue has got closed today. I don’t think anybody who has put in his/her application today will get any allotment.
Dear Shiv,
What is the limit for interest on application money, beyond which TDS is deducted ?
I greatly appreciate your in-depth reply to all of my querries. You are doing a great, selfless service to a lot of people.
Thanks
Dear TCB long time since I had heard from you. Nice to see here.
Dear Shiv and Sreedhar,
Do you think after an increase of 0.25% in repo rate on 29/10/13, the next issue of tax-free bonds will offer higher coupan rates than PFC / NHPC ?
Thanks
Dear TCB,
I think a hike of 0.25% in Repo Rate is already factored in the G-Sec yields and as these coupon rates depend on G-Sec rates, I don’t think it will result in higher coupon rates for TFBs.
But, the problem lies somewhere else. India has failed miserably to control its inflation & boost its GDP growth & industrial production. So, all these factors are putting a lot of strain on fiscal deficit & current account deficit. Market participants are worried more about these things rather than Dr. Rajan hiking Repo Rate by 0.25%. That is why Indian G-Sec bond yield is not falling sharply, despite US bond yield falling below 2.50% after touching 3% just few weeks back.
Dear TCB, I am not 100% sure about it, but I think it should be Rs. 5,000.
Also, thanks a lot for your kind words!
Day 3 (October 22nd) subscription figures:
Category I – Rs. 420 crore as against Rs. 150 crore reserved
Category II – Rs. 632.24 crore as against Rs. 200 crore reserved
Category III – Rs. 402.76 crore as against Rs. 250 crore reserved
Category IV – Rs. 470.09 crore as against Rs. 400 crore reserved
Total Subscription – Rs. 1,925.09 crore as against total issue size of Rs. 1,000 crore
It is closing tomorrow i.e 23 october
Thanks Sreedhar for sharing this info! It had to happen with such kind of response, but still I think NHPC should have taken this decision yesterday itself. Now, it will create some kind of chaos tomorrow.
Looks like NHPC is oversubscribed in all categories as shown in BSE Website . Did NHPC announce closure of the issue yet?
Yes, it has got oversubscribed in all the categories. No announcement has come yet from the company about its preclosure and I don’t understand why it is so. The company should have done it yesterday itself.
Day 2 (October 21st) subscription figures:
Category I – Rs. 420 crore as against Rs. 150 crore reserved
Category II – Rs. 632.05 crore as against Rs. 200 crore reserved
Category III – Rs. 399.11 crore as against Rs. 250 crore reserved
Category IV – Rs. 370.98 crore as against Rs. 400 crore reserved
Total Subscription – Rs. 1,822.14 crore as against total issue size of Rs. 1,000 crore
The issue should get closed tomorrow or maximum day after tomorrow.
Thanks lot Shiv.
I am going for 10yr bond. Just to confirm, the principal will be paid at the end of 10 yrs?
Thanks again,
Mithun.
Yes, the principal investment will be paid back at the end of 10 years.