Tax-Free Bonds to be launched in the next one week

by Shiv Kukreja on February 26, 2014

in Uncategorized

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.

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(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.

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