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
With rising inflation and high fiscal deficit here in India, yields on government securities are also rising and high G-Sec yields bring along some good investment opportunities for the prospective tax-free bond investors. Many of the investors, who could not invest in the previous five tax-free bond issues of REC, HUDCO, IIFCL, PFC and NHPC, have been eagerly waiting for the new issues to get launched.
A few days back Ramadas asked me if I know when the next tax free bond issue will hit the market. Here is what he had to say:
Ramadas November 19, 2013 at 7:16 am
Hi Shiv
Do you know when next tax free bond issue will hit the market? I see IRFC has already filed prospectus with SEBI. NTPC and NHB are in the news. Any confirmed dates when next tax free bonds will be issued?
I have received many such queries in the past 15-20 days as many people have been asking this question on different posts.
As none of the companies has filed the final prospectus for its issue, nobody knows the exact opening dates of the upcoming tax free bond issues. But, with whatever information I have and based on the dates of filing of their draft shelf prospectus, here is the list of tax free bond issues which are going to hit the streets in the next one month or so.
IIFCL Issue – Last week of November – IIFCL announced earlier this month that it would launch the second tranche of its tax free bonds in the third or the fourth week of November. IIFCL has already raised around Rs. 4,200 crore out of Rs. 10,000 crore it has been allowed to raise from tax-free bonds this financial year.
HUDCO Issue – Last week of November – I have been told by a close associate that HUDCO is also planning to launch the second tranche of its tax-free bonds issue in the next 3-5 days time. The company could raise around Rs. 2,400 crore in the first tranche which got closed on October 14. HUDCO still has the authority to raise another Rs. 2,400 crore.
IRFC Issue – First week of December – IRFC filed the draft shelf prospectus with SEBI to raise Rs. 10,000 crore from its tax-free bonds issues on November 11. As observed in the past, it takes around 15-20 days for a company to launch its public issue from the date it files the draft shelf prospectus.
Also, as Shashwat shared it yesterday, an official of IRFC has told Deccan Herald that it is planning to launch its public issue in December. Taking a cue from it, I think IRFC issue should hit the streets in the first week of December.
NTPC Issue – First week of December – Just a few days after IRFC did it, NTPC also filed the draft shelf prospectus on November 15 to raise Rs. 1,750 crore from tax-free bonds. So, I expect NTPC issue also to hit either in the first week or the second week of December.
NHB Issue – Second week of December – Though NHB raised Rs. 900 crore from these bonds through private placement in August this year, it has taken more than usual time to do it through its public issue. But, now they have officially announced to launch its issue in the second week of December. I hope they do not delay it further.
NHAI Issue – Second half of December – Last month, NHAI announced its plan to raise funds through these bonds sometime in December. But, as the company has still not filed its draft shelf prospectus as yet, I do not see the issue hitting the streets before second half of December.
November was a dry month as far as tax free bond issues are concerned. But, if all these issues get launched sometime next month, it would really create a glut for these bonds in the market.
Thanks to the high interest rates scenario, these companies would find it less difficult to attract investors’ money to get invested in these bonds.
I’ll update this post as and when I have any information about any new issue getting launched and the coupon rates it is going to carry. If any of you get any kind of information, please share it here so that all of us benefit out of it.
Shiv, Thanks for your informative posts. Can you list the tax free bonds that will be launched in this financial year between Jan till march 2014 please?
Thanks Rashmi! Very few companies have been left to issue these bonds for the remaining financial year, but still I’ll try to cover that list.
thanks shiv
You are welcome!
NHAI Tax-Free Bonds issue opens January 15th. Coupon Rates – 8.52% for 10 years and 8.75% for 15 years. 20-year option is not there. It is rated ‘AAA’ and closes on February 5, 2014.
Any guess what can be the interest rate for NHAI please?
Hi Deepak,
I won’t be able to guess it at this point of time, but market participants are estimating it to be lower than the NHB interest rates.
Thanks Siva for your prompt response.
I also feel the same however trying to find if the interest rate will be more then 8.65 ( IRFC) accordingly decide weather to wait for NHAI or not.
Where we can see the subscription detail for IRFC?
Thanks
Deepak
I am not sure whether the interest rates would be lower or higher than IRFC issue, but I think there is no harm in waiting for the rates to get announced. IRFC issue is not going to get closed before January 20th for sure and I think NHAI rates will get announced before that.
Here is the link to check the subscription numbers for the IRFC issue – http://www.bseindia.com/markets/publicIssues/DisplayIPO.aspx?id=753&type=DPI&idtype=1&status=L&IPONo=812&startdt=1/6/2014
Thanks again Shiv 🙂
You are welcome!
Dear Shiv,
Any info on Tax Free Bonds by IREDA, AAI and others?
Could there be a possibility that they have raised the amount through private placement?
Hi Nagendra,
No, I don’t have any info about any other tax-free bond issue as yet, except that NHAI has filed its Draft Shelf Prospectus on 27th Dec. It is not possible for any company to raise the whole amount through private placements. 70% of the money has to be raised through public issue(s).
Shiv, Appreciate all ur posts on TFBs, have been reading all those and taking investment decisions accordingly. Wanted to say these posts really helps us a lot, ur doing a great job. Thanks so much and Happy New Year in advance!!
Thanks a lot Chaitanya for your kind and motivating words and also for your new year wishes !! You too have a wonderful year ahead !! 🙂
Great News !!! What is the issue size ?
It is Rs. 2,100 crore.
NHB Tax-Free Bonds issue opens on December 30th. Coupon Rates – 8.51% for 10 years, 8.88% for 15 years and 9.01% for 20 years. It is a ‘AAA’ rated issue and closes on January 31, 2014. I am pleasantly surprised with the coupon rates.
From where did u get the coupon rates? Are you investing in these issues;tax free bonds?
Hi,
Any news (confirmed or unconfirmed) on coupon rates of NHB tax free bonds. It is slated for launch on Dec 30th.
Hi Sailesh,
No news on that. Even the launch date of 30th December is tentative.
Hi Shiv,
A little query about the history of the TFBs. How old is the TFB market in India ? and are there instances where people have bought TFBs say 10-15 years ago are holding them and receiving interest payments and maturity amounts as scheduled ?
Hi Aditya,
Some 10-12 years back, RBI used to issue these bonds on behalf of the government of India. Those bonds used to carry 8% tax-free returns initially and then 6.5% tax-free & 8% taxable interest. After a few years, the government decided to stop issuing those bonds. I think all these bonds must have got matured by now.
Now, since FY 2011-12, the government has again decided to allow certain big PSUs to issue tax-free bonds, starting with NHAI & PFC in December 2011, IRFC & HUDCO in January 2012 and REC in March 2012. Last FY also, such companies raised some Rs. 20,000-25,000 crore and this year also, the process is on.
Nothing negative to be shared about, but then tax-free bonds issued by these PSUs are riskier than the bonds issued by the government itself.
Inflation indexed bonds illustration: Coupons of 11.97% and 12.83% during last two years.
(1) date
(2)fixed coupon
(3) reference cpi (i.e. of month 3 months earlier of date in column 1)
(4) %age increase in referenced cpi over last six months
(5) coupon = column 2+column 4
(6) cummulative value
(7) annual return during tenancy
(1) (2) (3) (4) (5) (6) (7)
01.02.2012 113.6 1000
01.08.2012 0.75 118.2 4.049 4.799 1048
01.02.2013 0.75 125.4 6.091 6.841 1120 11.97
01.08.2013 0.75 129.2 3.030 3.780 1162
01.02.2014 0.75 139.5 7.972 8.722 1263 12.83
Thanks Jasbir for valuable input.
Had a look at historic CPI, it has increased gradually in the last 5-6 yrs, but CPI has fluctuated in past, it has come down to 4-5% early 2000. Inflation coming down is good for economy but will not offer better returns on inflation indexed bonds.
Historic CPI
http://www.inflation.eu/inflation-rates/india/historic-inflation/cpi-inflation-india.aspx
Thanks a lot for this calculation and analysis Jasbir!
IRFC issue to get launched on January 6th. Coupon Rates are 8.48% p.a. for 10 years and 8.65% p.a. for 15 years. The issue closes on January 20th.
Hi Shiv – Think the closing date is 20th February .. can you please check ?
Hi Aditya,
It is January 20th for sure.
Thanks for clarification. In the prospectus it mentions 2 different dates – on page 17 it says 20 February whereas somewhere down it says 20 January – confusing 🙂
Yes, that’s right. It is February 20th at one place, rest everywhere it is January 20th. Even the illustrative example has the Deemed Date of Allotment as January 30th, so I think it is January 20th.
Issue size being 8663 crore and with these lower interest rates , dont you think it is ambitious of IRFC to close the issue in 14 days !!!!
Absolutely, I totally agree, it is !! But, still they have time till March 31st to garner Rs. 8,663 crore. Also, they can extend this issue, if required.
But where did you find the prospectus???
http://www.akcapindia.com//WebSiteDocuments/ProspectusTrancheIfilingversion.pdf
Thanks Shiv
You are welcome!
Dear Shiv,
Can you please write a post on inflation indexed bonds due to launch on 23rd Dec?
I am doing that Nagendra, you’ll get to check it by tomorrow.
Inflation Indexed Bonds – opens 23rd Dec closes 31st Dec
http://economictimes.indiatimes.com/markets/bonds/inflation-index-bond-to-be-launched-
on-december-23/articleshow/27663674.cms
NHB tax-free bonds issue to open on Dec 30
http://www.thehindubusinessline.com/industry-and-economy/banking/nhb-taxfree-bonds-issue-to-open-on-dec-30/article5482796.ece
Thanks Mr. Nagendra !!
Shiv – Do you expect the coupon rates to be similar now to the IIFCL issue ? When did NHB file its prospectus ?
It is very difficult to guess the coupon rates for the NHB issue Aditya. Let’s wait for the issue details to get announced. NHB filed its draft shelf prospectus on December 13th.
NHAI to launch its tax-free bonds issue sometime around mid-January.
http://www.thehindubusinessline.com/markets/nhais-taxfree-bond-issue-to-hit-market-in-midjan/article5478623.ece
Hi Shiv,
With the G-Sec yields cooling off a little bit after the RBI decision, do you think that IRFC might also push its issue to January ? I say this because they may not be able to attract investors with the lesser coupon rates right now.
Anything can happen Aditya. But, what’s the guarantee that rates will be higher in January? So, I don’t think IRFC should delay it further. Rest it all depends on IRFC.
Very informative.
Thanks AB !!
Excellent effort in listing all the upcoming bonds issue !! Any ideas when the IRFC issue is opening ?
Thanks Gaurav !!
IRFC is expected to launch its issue anytime in the next 10 days.
Will investing more than Rs 10 Lakhs in different tranches in a fiscal year invite Income Tax Dept for srutiny and explanation?
Not necessarily Anand !! Investment of Rs. 5 lakhs and above automatically gets reported to the I-T department, but it is not necessary that all investors face scrutiny. It is done on a random basis I think.