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.
Hi Shiv
I have the following question regarding REC Tax Free Bond
BSE Code 961779. /. 8.71 %. Retail coupon rate and for others like trust it is 8.46 %
BSE code. 961776. 8.46. %
Now my question is if I purchase from market in my Trust. A/C
Code. 961779. Will be. 8.46. %. And code no. 961776. will be also. 8.46. %. for. Trust a/c.
Please give me clarification on this.
Thanks
Hi Paresh,
If you are able to buy 8.71% bonds having BSE Code 961779, then you’ll get 8.46% rate of interest. With 8.46% bonds BSE Code 961776, it is obvious that you’ll get 8.46% annually. So, whichever series you buy for your trust, you’ll get 8.46% only.
REC tax-free bonds to get listed on the BSE tomorrow i.e. March 27th, Thursday.
Here are the BSE codes for the same:
8.44% 10-year bonds – BSE Code – 961873
8.88% 15-year bonds – BSE Code – 961875
8.86% 20-year bonds – BSE Code – 961877
Deemed date of allotment has been fixed as March 24, 2014. Interest will be paid on December 1st every year.
I have received REC Bonds in my DEMAT account. Interest is also credited to my bank account.
I presume allotment date is 25 March
IRFC allotment did not appear so far
For information please.
Thanks Anand for sharing this info !!
Hi Shiv,
Any update when the Ennore, IRFC and IIFCL bonds will be allotted.
Thanks
Hi Gaurav,
I think it should take a day or two for Ennore and IRFC to start allotting their bonds. IIFCL should take 1-2 days extra.
I got the interest amount in to my bank account to-day for REC Bond
Thanks for sharing this info !!
Hi Shiv,
Are there any more Tax free bond issues in the near horizon.
Thanks
Hi Gaurav,
No planned issue is lined up for the current financial year. Also, even if the next government decides to allow these companies to issue such tax free bonds next financial year also, I don’t think any issue will hit the markets before October-November.
Does anyone got allotment for REC bonds? The money was deducted yesterday from my account. Waiting for allotment now . Please let me know if anyone has updates
REC allotment hasn’t started as yet. I think it should start happening from today evening.
Thanks Mr. Shiv. Very clear and precise response. I really appreciate !!
Regards,
You are most welcome !!
I have invested in Category II Rs. 16,05,000 by two applications.
As on to-day [ March 14 ]
Category – II – Rs. 220 crore as against Rs. 875.06 crore reserved
Total Subscription : Rs. 1769.88 crore as against total issue size of Rs. 2917/26 crore
So what i understood is i will get the full allotment in Category – II
Is this right ?
That is absolutely right.
Day 11 (March 14) subscription figures for IRFC Tranche II:
Category I – Rs. 505.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 220 crore as against Rs. 875.06 crore reserved
Category III – Rs. 463.11 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 581.76 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 1,769.88 crore as against total issue size of Rs. 2,917.26 crore
IRFC issue stands closed today. Huge subscription seen in Category I today. Retail investors will get 100% allotment.
Day 11 (March 14) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 240.01 crore as against Rs. 264.84 crore reserved
Category III – Rs. 284.26 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 527.44 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 1,096.71 crore as against total issue size of Rs. 1,059.38 crore
REC issue also stands closed today. Undersubscription of Rs. 85.77 crore in Category I & II will go to Category IV investors. So, Category IV investors, whose applications got submitted for bidding till yesterday, will get full allotment. Those who submitted their applications today for bidding will get proportionate allotment.
What about IRFC? That is also struggling for collection. It has extended once, will it extend it once again?
No extension decision has been announced by IRFC as yet, so it is safe to assume that the issue is not getting extended.
Hello Shiv,
Any information on forthcoming tax free bonds in Mar 2014. Is IRFC / REC / IIFCL the last option to invest or is NTPC / NHAI expected to come out with any in the next week or so?
From your subscription update of yesterday, seems like IRFC has enough bonds left and one could get a 100% allotment, right?
Do you suggest subscribing to IRFC bonds or picking some other AAA rated bonds from the secondary market with a similar YTM as that of IRFC. Which ones would you recommend from the secondary market? Hope the coupon is the same if one picks up from the secondary market?
Thanks in advance !!
Regards,
Ashok
Hello Mr. Ashok,
1. No more issues are expected to open this financial year. NTPC has already raised the additional Rs. 500 crore through private placement. NHAI has no plans to raise any additional amount.
2. With IRFC, 100% allotment is guaranteed.
3. I think it is better to subscribe to IRFC from the primary market rather than secondary market. Coupon rate remains the same if you buy current year’s TFBs from the secondary markets. “Step down” coupon is applicable for the bonds issued during FY 2012-13.
has anyone applied using 2 applications. did they get allotement or was rejected?
You can submit 2 or more applications for your investments, they don’t get rejected. The only thing you need to focus on is that in order to get higher rate of interest, your total investment should not cross Rs. 10 lakhs on the “Record Date” or “Ex-Interest Date”.
Day 10 (March 13) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 169.60 crore as against Rs. 875.06 crore reserved
Category III – Rs. 286.65 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 504.90 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 1,056.16 crore as against total issue size of Rs. 2,917.26 crore
Day 10 (March 13) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 234.70 crore as against Rs. 264.84 crore reserved
Category III – Rs. 261.61 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 494.71 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 1,036.01 crore as against total issue size of Rs. 1,059.38 crore
Day 10 (March 13) subscription figures for HUDCO Tranche III:
Category I – Rs. 0.05 crore as against Rs. 28.58 crore reserved
Category II – Rs. 27.10 crore as against Rs. 28.58 crore reserved
Category III – Rs. 26.76 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 224.59 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 278.51 crore as against total issue size of Rs. 286.40 crore
HUDCO issue stands closed today. All the remaining four issues are also getting closed tomorrow. So, it is the last chance for the investors to invest in the tax free bonds this financial year.
Looks like IIFCL has extended closure date to 18th March. ICICI Direct has changed the same in IPO section. Going by subscription , IRFC may also have to extend.
Regards
Ramadas
Thanks Ramadas for the info, I am yet to get any intimation regarding this.
It is confirmed that the closing date of IIFCL tax free bonds issue has been extended to March 18th i.e. only for one working day. Thanks Ramadas !!
Any chances IRFC will further delay issue closure given current subscription levels? I know they have already done so once…
No extension decision has been taken by IRFC as yet, so it is safe to assume that it is not getting extended. Though highly unlikely, if anything of that sort gets announced today, I’ll keep you updated.
HUDCO Tranche III issue is getting closed for subscription tomorrow, March 13th.
Dear Mr.Shiv,
many thanks for your quick response.
Best regards
You are welcome!
Dear Mr. Shiv,
I WAS WAITING FOR NTPC TAX FREE BOND WHICH WAS TO BE LAUNCHED IN 2ND WEEK OF MARCH 2014. CAN YOU PLEASE INFORM WHEN IT IS GOING TO OPEN? IF ITS NOT SHOWING UP I PROPOSE TO INVEST IN IRFC OR REC WHICH ARE STILL OPEN. WHICH ONE IS BETTER AND ASSURES FIRM ALLOTMENT.
MANY THANKS FOR INFORMATION
BEST REGARDS
Dear Mr. Anand, I have already responded to your query above.
Day 9 (March 12) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 162.73 crore as against Rs. 875.06 crore reserved
Category III – Rs. 207.89 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 460.73 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 926.35 crore as against total issue size of Rs. 2,917.26 crore
Day 9 (March 12) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 203.34 crore as against Rs. 264.84 crore reserved
Category III – Rs. 129.80 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 467.51 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 845.66 crore as against total issue size of Rs. 1,059.38 crore
Day 9 (March 12) subscription figures for HUDCO Tranche III:
Category I – Rs. 0.05 crore as against Rs. 28.58 crore reserved
Category II – Rs. 26.53 crore as against Rs. 28.58 crore reserved
Category III – Rs. 23.10 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 210.92 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 260.61 crore as against total issue size of Rs. 286.40 crore
Dear Mr. Shiv,
I WAS WAITING FOR NTPC TAX FREE BOND WHICH WAS TO BE LAUNCHED IN 2ND WEEK OF MARCH 2014. CAN YOU PLEASE INFORM WHEN IT IS GOING TO OPEN? IF ITS NOT SHOWING UP I PROPOSE TO INVEST IN IRFC OR REC WHICH ARE STILL OPEN. WHICH ONE IS BETTER AND ASSURES FIRM ALLOTMENT.
MANY THANKS FOR INFORMATION.
I POSTING THE MESSAGE HERE TOO.
BEST REGARDS
BEST REGARDS
Dear Mr. Anand,
NTPC has already raised an additional Rs. 500 crore in tax free bonds through a private placement, so no new issue is expected from NTPC. I think IRFC is a better issue between the two and it has enough bonds to confirm you 100% allotment.