NTPC 8.91% Tax Free Bonds – December 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

NTPC (BSE:532355), the country’s largest power generator and a ‘Maharatna’ company, is set to enter the battlefield of tax-free bond issues from Tuesday, December 3rd. It would become the sixth company to do so this financial year after REC, HUDCO, IIFCL, PFC and NHPC.

The issue will remain open for just ten working days to get closed on December 16th i.e. Monday.

Size of the Issue – NTPC has been authorized to raise Rs. 1,750 crore from tax free bonds this financial year. The company plans to mop up the whole of Rs. 1,750 crore from this issue itself, including the green shoe option of Rs. 750 crore, as the base issue size is Rs. 1,000 crore.

Rating of the Issue – NTPC is a big company with market capitalization of Rs. 121,497 crore as compared to REC’s market cap of Rs. 22,376 crore, NHPC’s market cap of Rs. 22,326 crore and PFC’s market cap of Rs. 20,956 crore. Considering its big size and strong fundamentals, CRISIL and ICRA have assigned ‘AAA’ rating to the issue.

Like all other tax free bond issues, these bonds are also ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – As the issue is rated AAA, the coupon rates are lower by 10 basis points or 0.10% lower than that of HUDCO. NTPC is offering 8.66% per annum for its 10-year option, 8.73% per annum for the 15-year option and 8.91% per annum for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

NRI Investment – Repatriation Not Allowed – Non-Resident Indians (NRIs) are also eligible to invest in this issue, but only on a non-repatriation basis. NRI investors will not be allowed to repatriate its interest amount or maturity proceeds outside India.

QFI Investment – Also, unlike HUDCO tax free bonds, Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

Investor Categories & Allocation Ratio – As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 175 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 700 crore

Allotment on First Come First Served 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.

Listing – NTPC has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE) and has successfully got  the necessary in-principle listing approval also from these exchanges. The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Investors have the choice to apply for these bonds either in physical form or in demat form, whichever they like.

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. An investor may sell them at the market price whenever he/she wants after these bonds get listed on the NSE or BSE.

Interest on Application Money & Refund – NTPC 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.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each. Though there is no upper limit for the investors to invest in this issue, an investor investing more than Rs. 10 lakhs will be categorized as an HNI and will get a lower rate of interest.

Interest Payment Date – NTPC will make its first interest payment exactly one year after the deemed date of allotment. As the deemed date of allotment will be announced just before the listing date, I will update this post as and when it gets announced.

NTPC is ranked fourteenth among the top Indian companies by market capitalization. Also, at present, there are only seven central public sector enterprises (CPSEs) which have been conferred the status of Maharatna and NTPC is one of them.

Among thirteen companies, which have been authorized to issue tax free bonds this financial year, NTPC is the only company which has this Maharatna status. In fact, the company this year in March got awarded as the most efficient Maharatna in manufacturing for the year 2012.

As NTPC is fundamentally a better company, the issue is rated ‘AAA’ and the issue size is relatively smaller at Rs. 1,750 crore, I think its coupon rates are attractive enough for the issue to get oversubscribed in the first week itself. I expect the investors’ response to be even better than that for NHPC and the company to get it preclosed much before its official closing date of December 16th.

Also, I expect the issue to provide some listing gains also, like it has been the case with NHPC bonds and PFC bonds. Let us see if it meets my expectations or not.

Application Form of NTPC Tax Free Bonds

NTPC Tax-Free Bonds – Bidding Centres

NTPC Tax-Free Bonds – Banking Matrix

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 NTPC tax-free bonds, you can contact me at +919811797407

93 thoughts on “NTPC 8.91% Tax Free Bonds – December 2013 Issue”

  1. Hi Shiv – If I buy these bonds from the secondary market, do I still get the tax free interest benefit? or is there some condition somewhere which reduces the post tax interest eanring to people buying NTPC bonds (or other tax free bonds) in the secondary market?

    1. Hi Ranjit,
      The interest you’ll get with NTPC bonds will remain tax free. There are no conditions attached except that your investment amount should not be more than Rs. 10 lakhs.

  2. NTPC Basis of Allotment:

    Category I (QIBs) – 41.37% of their 1st day subscription
    Category II (NIIs) – 31.66% of their 1st day subscription
    Category III (HNIs) – 56.15% of their 1st day subscription
    Category IV (Retail Investors) – 100% of their 1st day subscription and 13.69% of their 2nd day subscription

      1. Hi Shiv,
        My query was about basis of allotment as I was not sure about it.
        You already answered the same, thanks.


  3. NTPC tax-free bonds to get listed on the BSE & the NSE on December 19th i.e. Thursday.

    Here are the BSE and the NSE codes for the same:

    8.66% 10-year bonds – BSE Code – 961808, NSE Code – N4
    8.73% 15-year bonds – BSE Code – 961809, NSE Code – N5
    8.91% 20-year bonds – BSE Code – 961810, NSE Code – N6

    Deemed date of allotment has been fixed as December 16, 2013. Interest will be paid on December 16th every year.

  4. When will these bonds get listed? It would be helpful if you could share the BSE/NSE code for the same. Also have you heard any rumors about any upcoming TFB’s?

  5. I got my SMS but cant see anything in demat acct .Also says 7 which is pathetic. Had better luck with Power grid got more than 50% applied.

            1. Great !! Allotment has been made approximately 13-14% to all the applications made on December 4th. You must have also received your refund/interest money back into your bank account.

  6. Congrats to all above, I know the excitement!! I too was when I received the SMS.
    My only worry is RBI raising repo rate again, though am not looking for capital gains, it is disappointing to see you investment less than principle. I use TFBs to park my miniscule fund for eventual buying of house, thus I might loose some portion of my principle if they depreciate from their face value.

    1. Dear Binish,

      Your concern is valid. At the same time what is the solution? Wait for the highest rate coupon? In reality , no body can guess the bottom of the market and top as well. The one who invested in TF bonds last year are already seeing 10% loss in principal. But if you do not look at the price , you should be fine. When market interest rate was lower, you are satisfied by the rate offered by the bonds. I have started investing from the very TF bond of NHAI. I have sold few of them for gain also. I have continued subscribing to following issues also in small quantities based on fund availability. Today I have average 8.5% coupon return. If I am not planning for short term gain or urgent liquidity, this should be fine. If I need urgent money , then I have to factor the risk and sell. Basically , my personal advise is be happy where we are and no point in worrying about interest rate going up. There is also a chance for interest rate to go down in 1 year time.

      1. Hello George,

        I agree with you in letter. I had invested some amount in HUDCO TFBs last year, coupon rate is 8.51% for 20 yrs, but for those who buy them in secondary market it is 1% less, that is 7.51%. Its face value is 936 as of today, while I bought it at 1000.
        Even I feel interest rates are quite high and will start falling in following year.

  7. The bonds are showing 261223 and 261233 which suggests maturity on 26th Dec. I am not sure how the interest will be paid till 26th?

  8. Hi Shiv

    NTPC TFB are credited to my demat account this afternoon. That was pretty fast in 7 working days


    1. That has been the case with these bonds this financial year Mr. Ramadas !! Great to know that bonds have started getting credited. I am yet to get any message from my DP.

  9. Hi Shiv,

    I applied for NTPC bonds on 5th Dec. Any chances of getting allotment? What % allotment is likely?

    In case full allotment is not possible by when can i expect the balance money to be refunded back in my account (i appliled through my Demat account)?


    1. Hi SSG,

      You won’t get any allotment as the NTPC issue got oversubscribed in the retail category on December 4th itself. You can expect refund amount to get credited to your bank account between December 16th and December 20th.

      1. Thanks Shiv.

        Any more good tax free bond issues expected to hit the market after 16th – 20th Dec where the refund could be invested?

  10. Hi Shiv,

    The interest that is paid for the period between application date and allotment date, is that also tax free?


  11. Hi Shiv
    I have a question a bit unrelated to this post. I was trying to look up IFCI Infra bonds issued 2011(Manshu had done a post on same). My demat acct showed up market rate as double which is definitely wrong. When I tried to find the listing in BSE and Moneycontrol the rates are completely different(code: 972655).
    Please advise how to find the market rate and are we allowed to sell these? Thanks

    1. Hi Harineem,

      Please ignore all these market prices shown by all these portals. You just cannot redeem/sell your Infra Bond investments till the lock-in period gets over i.e. 5 years from the date of allotment.

  12. Day 3 (December 5) subscription figures:

    Category I – Rs. 423 crore as against Rs. 175 crore reserved
    Category II – Rs. 1,403.67 crore as against Rs. 437.50 crore reserved
    Category III – Rs. 895.64 crore as against Rs. 437.50 crore reserved
    Category IV – Rs. 947.26 crore as against Rs. 700 crore reserved
    Total Subscription – Rs. 3,669.56 crore as against total issue size of Rs. 1,750 crore

    NTPC tax-free bonds issue stands closed today.

      1. Hi Binish,

        NTPC will allot and list these bonds within 12 working days from the closure of the issue. So, you can expect the bonds to get allotted between December 17th to December 20th.

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