Month: February 2014

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

Three tax free bond issues are getting launched from the coming Friday i.e. 28th of this month. These are from IRFC, REC and HUDCO. While IRFC and REC issues are ‘AAA’ rated, HUDCO issue is ‘AA+’ rated. As most of you are aware by now, issues which carry higher ratings also carry lower coupon rates. So, it is natural for the IRFC and REC issues to offer lower rate of interest.

While HUDCO has been able to offer 8.98% as its highest annual interest rate, the same stands at 8.88% for the other two issues. As the HUDCO issue is of Rs. 285 crore only, which is very small by its standards, I expect the issue to get oversubscribed on the first day itself. This makes me feel like that the investors would be more interested in a comparison between the IRFC and the REC issues. So, I would like to cover such a comparison in this post.

Size of the Issues – IRFC issue is bigger in size with the company planning to raise approximately Rs. 2,916.88 crore this time around, whereas REC has recently got the authorization to raise another Rs. 1,059.40 crore. Both the companies have reserved 40% of their respective issue sizes for the retail investors.

Closing Dates of the Issues – REC issue is scheduled to close on March 14, whereas IRFC has decided to keep it extremely short to close it on March 7.

20-Year Option – REC will offer 8.86% per annum for the 20-year option, whereas the IRFC issue will not carry the 20-year option. For the other two durations, both companies are offering the same coupon rates.

Ratings of the Issues – As mentioned above also, both these issues are ‘AAA’ rated. While the IRFC issue is rated by CRISIL, ICRA and CARE, the REC issue is also rated by these three rating agencies in addition to India Ratings as well.

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 sizes reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – IRFC – 10% of the issue i.e. Rs. 291.69 crore is reserved; REC – 10% of the issue i.e. Rs. 105.94 crore

Category II – Non-Institutional Investors (NIIs) – IRFC – 30% of the issue i.e. Rs. 875.06 crore is reserved; REC – 25% of the issue i.e. 264.85 crore is reserved

Category III – High Net Worth Individuals including HUFs – IRFC – 20% of the issue i.e. Rs. 583.38 crore is reserved; REC – 25% of the issue i.e. 264.85 crore is reserved

Category IV – Retail Individual Investors (RIIs) – IRFC – 40% of the issue i.e. Rs. 1,166.75 crore is reserved; REC – 40% of the issue i.e. Rs. 423.76 crore is reserved

As always, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories.

NRI/FPI/QFI Investment – Both the companies have allowed Non-Resident Indians (NRIs) to participate in their respective issues, on a repatriation basis as well as on a non-repatriation basis. Qualified Foreign Investors (QFIs) category has been recently merged with the FIIs category to form a new category termed as Foreign Portfolio Investors (FPIs). FPIs have also been allowed to invest in these bonds now.

Listing – IRFC has decided to get its bonds listed both on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE), whereas REC bonds will get listed only on the BSE.

Interest on Application Money & Refund – Both the companies will pay interest to the successful allottees on their application money at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Interest Payment Dates – IRFC will pay the due interest on April 15th every year, whereas REC has fixed its interest payment date to be December 1st every year.

Though it is very difficult to make out which issue is superior between the two, I would personally prefer the IRFC issue due to its business fundamentals, bigger issue size and listing of its bonds on both the stock exchanges. But, if you have already invested with either of these companies earlier, then I think it would be better to go for the other company’s bonds in order to diversify your bond portfolio.

I would also like to wait for the NHB issue to declare its coupon rates sometime early next week. If NHB’s interest rates are higher, then I would rather prefer to go with the subsidiary of the central bank rather than these public sector enterprises.

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

Starting with IRFC and HUDCO issues from 28th February, the stage is set again for a large number of companies to issue their tax free bonds and fight with each other to get a slice of your investment pie. With IREDA, IIFCL and Ennore Port struggling to meet their targets of sourcing allocated quotas of money from the investors, National Housing Bank (NHB), Rural Electrification Corporation (REC) and National Thermal Power Corporation (NTPC) have got the requisite nod to again hit the streets with their additional issues.

Interest Rates on Offer – As the IRFC issue is rated ‘AAA’ and the HUDCO issue is rated ‘AA+’, there is a difference of 10 basis points (or 0.10%) between their respective interest rates. So, for the 10 year maturity period, IRFC issue will offer 8.44% per annum rate of interest, whereas HUDCO bonds will carry 8.54% per annum.

With the 15-year option, HUDCO will offer 8.98% p.a. which is very close to the psychological mark of 9% and the IRFC issue carries 8.88% p.a. For 20 years as well, HUDCO’s rate of interest @ 8.96% p.a. is very close to its 15 year rate. But, as with its last issue, IRFC has decided not to offer the 20-year option this time as well.

Though NHB, REC and NTPC are yet to file their final prospectus with SEBI and declare the coupon rates they will be offering, market participants are expecting the rates to be very close to the rates IRFC issue is carrying. I’ll update their rates as soon as I hear them from a reliable source.

Issue Opening Dates – While it is confirmed that IRFC and HUDCO issues are getting opened on the last day of this month i.e. February 28th, the coming Friday, NHB and REC issues are expected to open from March 3rd. There is no info with respect to the NTPC issue. I’ll cover these issues as soon as I get the required info.

Size of these Issues – While NHB had sought a permission to raise an additional Rs. 1,000 crore from the markets, the same stands at Rs. 1,000 crore for REC also and Rs. 500 crore for NTPC.

Also, while HUDCO will raise the remaining Rs. 285 crore of its allocated amount, IRFC will try to raise approximately Rs. 2,917 crore, which I think is a difficult task in this competitive market and that too, in a very short span of time the issue will remain open for.

(Figures are in Rs. Crore)

Issue Closing Dates – One thing which has really really surprised me are the closing dates of IRFC and HUDCO issues. With an issue size of just Rs. 285 crore, HUDCO has fixed its issue closing date to be March 19th, whereas IRFC has decided to keep its issue open for 5 working days only to close it on March 7th. I am wondering whether IRFC is too optimistic or HUDCO is too pessimistic to raise their respective targeted amounts. I hope IRFC will again extend its closing date if it is not able to complete its task in this short period.

Thanks to high inflation and the government’s high fiscal deficit and uncertain economic policies, interest rates here in India have remained high throughout during the current financial year. This has helped the investors in earning higher interest rates and the companies to easily raise money from the investors.

With NHB and NTPC bond issues coming again, the investors, who earlier missed their issues, will have the opportunity to now participate in these offers. As the demand is expected to remain strong for these issues again, the investors would do well to keep their funds ready and invest on the first day itself to avoid rejection of their investment applications.

Update 1 – REC issue will also open on February 28th and the coupon rates are – 8.41% p.a. for 10 years, 8.88% p.a. for 15 years and 8.86% p.a. for 20 years. Issue will get closed on March 14.

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

India Infrastructure Finance Company Limited, commonly known as IIFCL, has launched the third tranche of its tax-free bonds from Monday i.e. February 17. I know I am late in covering this issue, but I was undergoing some rigorous travelling over the weekend and also, my train back to Delhi got approximately 16 hours late. It was supposed to reach New Delhi Railway Station (NDLS) early morning on Monday at 07:20 but it actually reached the destination at 23:00 hours.

Getting over with the painful experience I had, I am back with this review. So, this is the third and most likely the last public issue of tax-free bonds by IIFCL for the current financial year. The company has already raised Rs. 7,176.21 crore through private placements and tranche I and tranche II of its earlier public issues. So, whatever is left over from its authorised limit of Rs. 10,000 crore, IIFCL has set that figure as its target to be raised in this public issue i.e. Rs. 2,823.79 crore.

The issue will remain open for subscription for almost a month to close on March 14. Here are the issue details which might interest you as an investor:

Rating of the Issue – Four rating agencies, ICRA, Brickwork Rating, CARE and India Rating, have rated this issue and as with its previous issues, this issue is also ‘AAA’ rated.

Coupon Rates on Offer – Interest rates, which this issue of IIFCL carries, are absolutely same as the rates which IREDA is offering i.e. 8.80% per annum for the 15 and 20 year options and 8.41% per annum for the 10 year option. As both these issues are ‘AAA’ rated, their interest rates are 20 basis points (or 0.20%) lower than the ‘AA’ rated rated Ennore Port issue.

NRI/QFI Investment – Non-Resident Indians (NRIs) as well as Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

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

Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue i.e. Rs. 423.57 crore is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 564.76 crore is reserved

Category III – High Net Worth Individuals including HUFs – 25% of the issue i.e. Rs. 705.95 crore is reserved

Category IV – Resident Indian Individuals including HUFs – 40% of the issue i.e. Rs. 1,129.52 crore is reserved

Allotment on First Come First Served Basis – Subject to the allocation ratio mentioned above, 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 exchange.

Listing – These bonds from IIFCL will get listed only on the Bombay Stock Exchange (BSE) and that too within 12 working days from the closing date of the issue.

Interest on Application Money & Refund – As with most of these issues, IIFCL will also 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.

Interest Payment Date – Interest payment date in this case is linked to the deemed date of allotment and that is why it is yet to get declared. Once the allotment gets done, I’ll update it here on this post itself and also the one which carries the interest payment dates of all the bonds which have got issued during the current financial year.

Demat not Mandatory – As most of the investors are aware, investment in these tax-free bonds don’t require you to mandatorily have a demat account to apply for these bonds. You may subscribe to them in certificate form as well like a fixed deposit. and can get them converted to demat form whenever you want.

Lock-in Period, Premature Redemption – As these are not any tax saving bonds, there is no lock-in period with these bonds and if you take these bonds in your demat account, you can sell them whenever you want on the BSE once they get listed for trading. But, if you take these bonds in physical/certificate form, you cannot redeem these bonds back to the company before their maturity period gets over.

Among the three issues which are currently open for subscription, I would personally prefer the IIFCL issue the most, the IREDA offer as my second option and the Ennore Port issue I would give it the third rank. But, in order to diversify their tax free bonds portfolio, I think the investors would like to give this issue a miss as they might have already applied for the IIFCL bonds in its previous offerings.

Application Form of IIFCL 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 IIFCL tax-free bonds, you can contact me at +919811797407

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

As the IREDA issue is set to open for subscription on Monday, Ennore Port has decided to give it a competition by offering interest rates which are 20 basis points (or 0.20%) higher than the rates IREDA is offering. But, most importantly the Ennore Port issue is ‘AA’ rated as compared to the IREDA issue which is ‘AAA’ rated.

Had it been a case of comparing NCD issues of two private companies, I would have definitely and completely avoided the ‘AA’ rated issue. But, in case of two government owned companies, the matter becomes a little trickier and a close analysis is required to take your final decision. I’ll try to do the same here in this post.

The issue is slated to open for subscription from Tuesday i.e. February 18th and will get closed on March 14th, if it remains undersubscribed till that time and the company decides not to extend the closing date.

Size of the Issue – Ennore Port has been authorized to raise Rs. 500 crore from tax free bonds this financial year and the company plans to mop up the entire amount from this issue itself, including the green shoe option of Rs. 250 crore.

Rating of the Issue – I think this would be a concern area for most of the investors despite of the fact that it is offering relatively higher rate of interest. The issue has been rated ‘AA’ by two credit rating agencies, CARE and ICRA.

Like all other tax free bond issues, these bonds are also ‘Secured’ in nature and certain assets of the company, located within the port limits of Latitude 13? 17’ 36” North and Longitude 80? 20’ 51” East, along with the right to occupy and use the land over which the assets are situated, will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – As the issue is rated ‘AA’, its coupon rates are higher by 20 basis points or 0.20% as compared to the IREDA issue and IIFCL issue which are also getting opened from the coming Monday. Ennore Port is offering 9% per annum for its 15-year and 20-year options and 8.61% per annum for the 10-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 high net worth individuals (HNIs) and non-retail investors i.e. institutional investors as well as corporate investors.

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.

NRI Investment – Like the IREDA issue, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue as well.

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. 50 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 100 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 30% of the issue is reserved i.e. Rs. 150 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 200 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 – Ennore Port has decided to get these bonds listed only on the Bombay Stock Exchange (BSE) and has successfully got the necessary in-principle listing approval for the same. 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 will be freely tradable and do not carry any lock-in period. So, an investor may sell them at the market price whenever he/she wants after these bonds get listed on the BSE.

Interest on Application Money & Refund – Ennore Port 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.

Interest Payment Date – Ennore Port has not fixed the date on which it will be paying its annual dividend and has decided to make its first interest payment exactly one year after the deemed date of allotment. As the deemed date of allotment will be fixed just before the listing date, I will update this post as and when it gets announced.

Profile and Financials of Ennore Port

Ennore Port is a public sector enterprise in which the Ministry of Shipping, GoI holds 66.67% stake and the rest 33.33% stake is held by the Board of Trustees, Chennai Port Trust.

The company is the developer and operator of Ennore Port, which was originally conceived as a satellite port to Chennai Port, primarily to handle thermal coal to meet the requirement of Tamil Nadu Electricity Board (TNEB) and thereafter the scope of the port was expanded taking into account subsequent developments plans of the Tamil Nadu Government to set up liquefied natural gas (LNG), petrochem and naphtha cracker power projects.

Ennore Port functions on the “Landlord Port Model” basis whereby the port constitutes a landlord, which manages the basic port assets by leasing land and basic infrastructure to port operators. Ennore Port carries operating functions such as planning, safety, pilotage, mooring, navigation and overall coordination.

It also provides the basic infrastructure facilities like construction of breakwaters, deepening and maintenance of port channels, dredged basin/channel, road and rail infrastructure for connectivity to hinterland, aids to navigation, fire fighting facilities, utilities, water and power supply and manage the resources apart from regulatory functions and overall port planning & development.

The company was conferred with Mini Ratna Category I status on June 30, 2009 by the government based on its consistent profitability over the previous three years.

During the financial year ended March 31, 2013, Ennore Port reported operating revenue of 320.21 crore and net profit of Rs. 173.37 crore as against operating revenues of Rs. 248.64 crore and net profit of Rs. 96.72 crore during the financial year ended March 31, 2012. Its relative performance during six months ended September 30, 2013 has also been relatively encouraging.

After analysing the financials and credit rating of Ennore Port, I would personally prefer investing my money in the IREDA issue as the differential of 0.20% per annum is just Rs. 200 on an investment of Rs. 1,00,000 and I would like to keep my investment safe rather than running after higher returns.

Application Form of Ennore Port 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 Ennore Port tax-free bonds, you can contact me at +919811797407

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

The last leg of the current financial year’s tax-free bond issues is all set to begin early next week with IREDA and Ennore Port issues. While IREDA is next in line to issue its tax-free bonds from Monday i.e. 17th of February, Ennore Port issue is also scheduled to open the very next day i.e. Tuesday.

Though the IREDA issue is scheduled to officially close on March 10th, the company has the right to either preclose the issue or extend it depending on the investors’ response.

Before we check out other regular features of the IREDA issue, let us first try to know more about the company and its financials, as only a very few people have heard about this company in the past.

Profile of IREDA

Indian Renewable Energy Development Agency Limited (IREDA) is a wholly-owned government of India (GoI) enterprise and operates under the administrative control of the Ministry of New & Renewable Energy (MNRE). IREDA finances renewable energy & energy efficiency projects and operates a revolving fund for promotion, development and commercialization of new and renewable sources of energy.

The sectors financed by IREDA can be broadly classified under – wind energy, hydro energy, bio energy, solar energy, energy efficiency and conservation, and emerging technologies.

Loans Sanctioned by IREDA (Rs. in crores)

Loans Disbursed by IREDA (Rs. in crores)

Financials of IREDA

During the financial year ended March 31, 2013, IREDA reported profit after tax (PAT) of Rs. 202.65 crore on total revenues of Rs. 729.56 crore as against PAT of Rs. 173.13 crore and revenues of Rs. 534.82 crore during the financial year ended March 31, 2012. Its relative performance during six months ended September 30, 2013 seems reasonably satisfactory with a PAT of Rs. 119.87 crore and revenues of Rs. 444.10 crore.

The company has also been able to improve on its interest rate spread and non-performing assets (NPAs) in the past one year or so.

Now, let us quickly check out the main features of this issue:

Size of the Issue – While IREDA has set the base size of the issue at Rs. 500 crore, the total issue size stands at Rs. 1,000 crore, including the green shoe option of Rs. 500 crore.

Rating of the Issue – Credit rating agencies CARE and Brickwork Ratings (BWR) have assigned ‘AAA’ rating to the issue, which is again the highest rating by any of these rating agencies, indicating lowest credit risk and thus highest safety for the investors’ investments.

Interest Rates on Offer – Due to a jump in the 15-year and 20-year G-Sec yields after the RBI hiked Repo Rate in its monetary policy last month, IREDA issue carries higher rates for these respective tenors at 8.80% per annum. At 8.80%, IREDA’s 15-year option interest rate stands higher than 8.75% NHAI issue was offering and 8.65% IRFC issue carried for 15 years.

NRI Investment – Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue.

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

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 100 crore is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue i.e. Rs. 200 crore is reserved

Category III – High Net Worth Individuals including HUFs – 30% of the issue i.e. Rs. 300 crore is reserved

Category IV – Resident Indian Individuals including HUFs – 40% of the issue i.e. Rs. 400 crore is reserved

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, Lock-in Period, Premature Redemption – The company has decided to get its bonds listed on the Bombay Stock Exchange (BSE) as well as on the National Stock Exchange (NSE). Like with the past issues, these bonds will also get allotted and listed within 12 working days from the closing date of the issue.

There is no lock-in period with these bonds, but at the same time, you cannot redeem these bonds back to the company before their maturity period gets over. In order to encash your investment before maturity, you’ll have to compulsorily sell these bonds on the stock exchange(s) where they will get listed for trading.

Demat/Physical Option – Though it is mandatory to have a demat account to sell/trade these bonds, you can subscribe to them in physical/certificate form as well and keep them till maturity. Interest will get credited to your linked bank account through ECS.

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

Face Value of the bonds & Minimum Investment – The company has decided to keep the face value of these bonds as Rs. 1,000 and the investors will be required to apply for at least five bonds to participate in the offer.

Interest Payment Date – Like many issues in the past, IREDA has not fixed its interest payment date as yet and the first due interest will be paid exactly after one year from the deemed date of allotment.

As far as the safety of the investors’ investments is concerned, I would like to mention it here that MNRE (GoI) has issued a “Letter of Comfort” to IREDA which states, inter alia, that the Ministry has been infusing equity capital into the company to support its business plans and will continue to support it in future as well whenever required. Besides, the Ministry will ensure that IREDA meets its payment obligations on these tax free bonds in a timely manner.

The issue looks reasonably good to me from the long-term investment point of view. The only thing which is required to earn capital gains from these tax-free bonds is a healthy fall in the G-Sec yields.

Application Form of IREDA 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 IREDA tax-free bonds, you can contact me at +919811797407