National Highway Authorities of India Tax Free Bond and Stock Market Investment

Introduction

National Highways Authority of India (NHAI), has go into the debt capital market on 15.01.2014, with an topic of Tax Free Bonds of face worth of Rs. 1,000 apiece, in the nature of Secured Redeemable Non Convertible Debentures.

Issue Details

Concluding on 05.02.2014, issue has a size of Rs. 1,000 crore, with an alternative in companies hand to retain an over-subscription up to Rs. 2,698 crore, taking total fund-raising to Rs. 3,698 crore. Minimum application amount is Rs. 5,000, and in multiples of Rs, 1,000 thereafter. Allocation will be on first come first serve basis.

Rating

AAA by CRISIL, CARE and BRICKWORK, indicating uppermost degree of safety regarding appropriate servicing of financial compulsion

Issue Listing

National Stock Exchange and Bombay Stock Exchange, Bonds are to be concern mutually in physical and dematerialized form, therefore a demat account is not essential to purchase these bonds. Trading in the bonds will unavoidably be in the demat form.

Proffer of the Issue

The current bonds are being offered fewer than two series with features as under:

Particulars

Series I

Series II

Tenor

10 Years

15 Years

Frequency of Interest Payment

Annual

Annual

Coupon Rate (%) Per Ann-um

# For Retail Investors *

8.52% P.A

8.75% P.A

# Other Than Retail Investors

8.27% P.A

8.50% P.A

Put/Call Option

Null

Null

*Retail investor defined as resident individual, HUF and NRIs upto limit of Rs. 10 lakh

Allocation ratio: 40 percent for retail investors, 20 percent for High Net worth Individuals, 30 percent for corporate, 10 percent for Qualified Institutional Buyer

Rate of Return

National Highway Authorities of India’s 15 year (Series 2) bonds carrying 8.75 percent per annum coupon for retail investors, are comparable to 12.66 percent pre-tax return earned on other fixed income instrument, presumptuous the highest tax bracket of 30.9 percent for retail individuals. These rates are 10 basis points (0.10%) higher than Indian Railway Finance Corporations issue currently open for subscription carrying same AAA credit rating.

Seeing as tax free bonds score over company Non Convertible Debentures due to longer duration and higher tax-efficient returns, no point comparing this issue with Non Convertible Debentures of ECL Finance, Manappuram, Muthoot and SREI Infra for investors in the highest tax chunk of 30.90 percent. Those in the lower tax bracket of (0%, 10% or 20%) can consider the Non Convertible Debentures only if they have a lower time horizon for three or five years.

Recommendation

National Highway Authorities of India bond issue is not the best-looking, due to comparatively lower tenure of fifteen years. Although coupon rate is higher than IRFCL, inform to wait for other tax free bond issues with 20 year bonds, which are likely to open for subscription over the next duo of months.

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Shriram Transport Finance – NCD Issue

Introduction

Shriram Transport Finance, India’s largest commercial vehicle financing company, is incoming to the debt capital market with a public issue of secured Non-Convertible debentures (NCD) of face value Rs. 1,000 each, on October 07th 2013, to increase of Rs. 250 crore, with an opportunity to keep another Rs. 250 crore, captivating the entire fund raised to Rs. 500 crore.

Issue Allocation

  • 50% reserved for retail investors,
  • 30% for HNIs
  • 10% each for institutions and non-institutions

Issue Details

21st October 2013 (with option to close / extend the issue)

Details

National Stock Exchange and Bombay Stock Exchange, one Non Convertible Debentures comprising one trading lot.

Application Amount

Lowest Rs.  10,000/- and in multiples of Rs. 1,000/- afterward

Rating

‘AA/Stable’ by CRISIL, ‘AA+’ by CARE, signifying high degree of security for timely interest and principal payment.

Company Background

Shriram Transport Finance, a deposit taking, Non Banking Financial Company with Assets Under Management of Rs. 52,717 crore as of March 31, 2013, is the only organized player in the used Curriculum Vita financing market, joined with a healthy balance sheet with capital adequacy ratio (CAR) of 20.58 percent as of March 31st 2013, against RBI’s requirement of 15 percent. Company’s total income for FY13 was Rs. 7,014 crore (up 13% YoY), with net profit of Rs. 1,463 crore (up 12% YoY). Its net Non Performing Assets are just 0.8% of net loan assets in FY13, on net worth of Rs. 7,338 crore. The funds raised via the Non Convertible Debentures issue will be used for financing behavior, repaying accessible loans, business operations and working capital condition. Therefore, the company is fundamentally hummed with a strong balance sheet.

Proffer of the issue

Three different tenures are being offers Three years, Five years and Seven years:

 

Particulars

Series I

Series II

Series III

Series IV

Series V

Series VI

Term

3 Years

5 Years

7 Years

3 Years

5 Years

7 Years

Interest Payment

Annual

Annual

Annual

NA

NA

NA

Coupon Rate {% P.A}

# Individual Investor

11.25%

11.50%

11.75%

NA

NA

NA

# Non-Individual Investor

10.75%

10.75%

10.75%

NA

NA

NA

Effective Yield{% P.A}

# Individual Investor

11.25%

11.50%

11.75%

11.25%

11.50%

11.75%

# Non-Individual Investor

10.75%

10.75%

10.75%

10.75%

10.75%

10.75%

Put Call Option

None

None

None

None

None

None

Redemption Amount {As Per NCD}

# Individual Investor

Face Value

+Accrued Interest

Face Value

+Accrued Interest

Face Value

+Accrued Interest

Rs. 1,377.30

Rs. 1,723.87

Rs. 2,177.70

# Non-Individual Investor

Rs. 1,358.79

Rs. 1,666.63

Rs. 2,044.79

Rate of Return

The highest rate of interest / effective yield is being offered to individual investors under Series III and Series VI option for 7 years i.e.11.75% per annum.

Non Convertible Debentures offer dual advantage of higher coupon rates and liquidity (individual listed), making it a good-looking investment option for retail investors, vis-à-vis bank Fixed Deposit. On a post-tax basis, Series III and VI’s 11.75% yield offers net return of 8.12% pa to those falling in the highest tax group. Lying on the other hand, IIFCL tax free bonds (currently open for subscription) are offering 8.75 percent tax free return for twenty years, which score over the Non Convertible Debentures hands-down due to higher coupon and longer term.

Recommendation

Present Non Convertible Debentures issue from the Shriram group is an attractive fixed income gadget for each, but in comparison with tax free bonds, one must choose the last.

For Information on NCD Issues and NFO Updates visit www.profitkrishna.com

IIFCL TAX FREE BONDS

Introduction

India Infrastructure Finance Company Limited is a festive New Delhi head-quartered, providing long term financial assistance to infra projects and wholly owned by the Government of India has entered the debt capital market first time in this financial year  on October 2013 with a public issue of secured redeemable Non-Convertible Debentures (NCD) of face price Rs. 1,000 each.

Issue Details

India Infrastructure Finance Company Limited issue opened on 03 October 2013 and will close on 31st October’2013, and issue size were Rs. 5,000 Crores with an option in company’s hand to retain an over subscription up to Rs.2,500 crore. Least application is Rs. 5,000 and in multiples of Rs. 1,000 subsequent to that, while allotment will be done on first arrive first serve up basis. Being tax-free, the interest does not attract tax deductions nor do the bonds attract wealth tax. In addition, the bonds do not have any confine period.

Rating

IIFCL Bonds, rated AAA via CARE, ICRA and BWR, specify highest degree of safety regarding timely servicing of financial obligations.

Listing

To be listed on Bombay Stock Exchange, are to be subject both in physical and dematerialized form, therefore a demat account is not necessary to purchase these bonds. Trading lot is one bond and must be essentially in done demat form only.

Proffer of the Issue:

The NCD issue has three investment options as proffer below:

 

Facts

Series I

Series II

Series III

Tenure

10 Years

20 Years

15 Years

Interest Payment

Annual

Annual

Annual

Coupon Rate (%) P.A

# For Retail Investors

8.26%

8.63%

8.75%

Rest Of Investors

8.01%

8.38%

8.50%

Tax-Effective Yield (%) P.A (Assuming 30.90% Tax Free)

# For Retail Investors

11.95%

12.49%

12.66%

Rest of Investors

11.59%

12.13%

12.30%

 # Retail investors defined as application up to Rs. 10 lakhs from resident individuals, Hindu Undivided Family, A Non Resident Indians and Qualified Foreign Investors being individual. 40% of the issue is reserved for retail investors.

Rate of Return

This is the 3rd tax-free bond issue this financial year after

  1. REC closed on 16th September
  2. HUDCO being to close on 14th October
  3.  IIFCL is offering 8.75 percent coupon for 20 year period, which is comparable with HUDCO’s 8.74 percent. IIFCL’s 15 year coupon of 8.63 percent is much lower than HUDCO’s 8.76 percent. On the other hand, its credit rating of AAA is a notch better than HUDCO’s AA+. But that should not be matter, the subject being made by a public sector undertaking with a track record of successful bond issues.

 The Twenty year (Series III) bonds, carrying the highest coupon rate, are similar to a 12.66 percent pre-tax return earned on other fixed income gadget, assuming the highest tax category of 30.9 percent for retail individuals. This is very good-looking rate as currently no bank is offering double digit interest rates on long term deposits.

Beforehand issued (in 2012 and 2013) twenty year HUDCO bonds (maturing in 2033) are trading on Bombay Stock Exchange with yields of 7.80 percent-8.09percent. Therefore, current rates are significantly higher.

Recommendation

The present Non-Convertible Debentures issue carries attractive returns transversely maturities, with yields of 11.50% to 11.75% for five years being the highest for individuals. Alternatively, the SREI Infrastructure Finance is not the best placed in the sector witnessing tremendous stress and uncertainty. Comparison with SREI Infrastructure Finance preceding issue made earlier this year cannot be made as the liquidity is incredibly meager on BSE, with scarcely a duo of trades taking place in a calendar day and yields nearing 17% for the five year instrument.

Conclusion

Bearing in mind the tax free income to be earned from the bonds, AAA rating, twenty years tenor with attractive coupon rate, coupled with likely falling interest regime situation ahead, Individuals looking for fixed asset allocation can subscribe to the series III bonds with tenure of twenty years

For More Detail on Tax Free Bonds Visit www.profitkrishna.com

Shriram Transport Finance Company NCD

About Company:

Incorporated in 1979, Shriram Transport Finance Company Limited {STFC} is engaged in the business of commercial vehicle finance, Consumer finance , Life and General Insurance, Stock Broking, chit funds and distribution of financial products like life & general insurance harvest and element of mutual funds. Shriram Transport having 528 branches and service centers throughout India. The Company providing asset financing NBFCs with Reserve Bank of India under section 45IA of the Reserve Bank of India Act ,1934.

Objects of the Issue:

  • Various financing activities including lending and investments,
  • To repay existing loans and for business operations including capital expenditure and working capital requirements.

Issue Details:

  • Issue Open: 16 July’2013 – 29 July’2013 {with option to close/extend the issue}
  • Issue Type: Fixed Price Issue NCD
  • Issue Allocation: 50 Percent reserved for Retail Investors, 30 percent for HNI and 10 percent Each for Institutions and Non-Institutions
  • Issue Size: Rs. 750.00 Crore
  • Application Amount: Minimum 10,000 and in multiples of 1,000 thereafter
  • Listing At: BSE, NSE NCD comprising one trading lot

The NCDs proposed to be issued have been rated ‘CRISIL AA/Stable’ by CRISIL and ‘CARE AA+’ by CARE, indicating high degree of safety for timely interest and principal payment.

Options:

Particulars Series I Series II Series III Series IV Series V
Interest Pay Out Annual Annual Monthly On Redemption On Redemption
Tenure 3 Years 5 Years {4+1} 5 Years 3 Years 5 Years {4+1}
Coupon Rate {% P.A}
Individual Investors 10.90% 11.15% 10.63% N.A N.A
Non-Individual Investors 9.65% 9.80% 9.40% N.A N.A
Effective Yield {% P.A}}
Individual Investor 10.90% 11.15% 10.63% 10.90% 11.15%
Non-Individual Investor 9.65% 9.80% 9.40% 9.65% 9.80%
Put/Call Option Non None None None None
Redemption Amount {Per NCD}
Individual Investor

Face Value + Accrued Interest

50% face value after 4 years, 50% face value after 5 years with accrued interest

Face Value + Accrued Interest

Rs. 1,364.33

Rs. 763.37 after 4 years, Rs. 848.48 after 5 Years

Non-Individual Investor

Rs. 1,318.67

Rs. 726.93 after 4 years, Rs. 798.17 after 5 years

The highest rate of interest is being offered to individual investors under the 4+1 year’s tenure {i.e.} Series II and Series V, at 11.15 percent per annum effective yield. Series III with 5 year tenure is offering the lowest yield of 10.63 percent.

Shriram Transport Finance, a deposit-taking NBFC with assets under management (AUM) of Rs. 52,717 crore as of March 31, 2013, is the only organized player in the pre-owned CV financing market, coupled with a healthy balance sheet with capital adequacy ratio (CAR) of 20.58 percent as of 31st March 2013, against RBI’s requirement of 15 percent. Shriram Transport Finance total income for FY13 was Rs. 7,014 crore (up 13% YoY), with net profit of Rs. 1,463 crore (up 12% YoY). Shriram Transport Finance net NPAs are just 0.8% of net loan assets in FY13, on networth of Rs. 7,338 crore. The funds raised via the NCD issue will be used for financing activities, repaying existing loans, business operations and working capital requirement. Consequently, Shriram Transport Finance is fundamentally sound with a strong balance sheet.

NCDs offer dual advantage of higher coupon rates and liquidity, as they are listed on the stock exchanges, making it an attractive investment option for retail investors, vis-à-vis other fixed income products, such as bank Fixed Deposit or debt schemes of mutual funds. Also, 11.15 percent interest rate is attractive in the current macro environment. Even on a post-tax basis, Series II and V offer net return of 7.70 percent per annum to those falling in the highest tax bracket.

Even though listed, NCDs being very thinly traded on the stock exchange, a comparison of yields with peers or previous issues would be inappropriate. Take for example, the NCDs issued in July 2012 at coupon of 10.25 percent and 10.50 percent are trading at yields of 9.40-9.50 percent. Furthermore, there are few company deposits offering yields of 15.07% for 3 years (e.g. IVRCL). Yet, risk-reward pay-off is not favorable.

Present NCD issue from the Shriram group is very attractive for retail investors as it offers high ‘fixed returns’ for a long-term duration of 5 years. The group is perceived to be very investor friendly and has a history of successful NCD issues in the past. Those looking for diversified investment options can apply in the issue (Series II or Series V), which scores over other ‘fixed income’ investment options. Click here to know more about Shriram Transport Finance Company NCD.

Shriram Transport NCD Lead Manager(s):

  • JM Financial Institutional Securities Private Ltd.
  • AK Capital Services Limited
  • HDFC Bank Limited
  • ICICI Securities Limited

Shriram Transport NCD Co-Lead Manager(s):

  • Karvy Investor Services Limited,
  • RR Investors Capital Services Private Ltd.

Shriram Transport NCD Trustee(s):

  • SMC Capitals Ltd and Trust Investment Advisors Private Limited
  • IDBI Trusteeship Services Ltd.

Shriram Transport NCD Registrar:

  • Integrated Enterprises (India) Ltd.

NCD Public Issue – NBFC Muthoot Finance

Introduction:

Premier gold-loan NBFC Muthoot Finance has entered the debt capital market with a public issue of secured redeemable non-convertible debentures (NCDs) of face value Rs. 1,000 each, to raise Rs. 250 crore with an option to retain another Rs 250 crore, taking the total fund raising to Rs. 500 crore.

Issue Details:

The first-cum-first-serve issue has opened on 17th September and closes on 5th October 2012, with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs 10,000, and in multiples of Rs, 1,000 thereof.

Rating: ‘AA-/Stable’ by CRISIL and ICRA indicating high degree of safety for timely servicing of financial obligations

Listing: To be listed on NSE and BSE with one NCD comprising a trading lot. NCDs in Series I to IV would be issued both in physical and demat form, while Series V NCD will be issued compulsorily in demat form.

What’s on offer: The NCD issue has 5 investment options as under:

Particulars

Series I

Series II

Series III

Series IV

Series V

Frequency Of Interest Payment

Annual

Annual

Monthly

Annual

On Redemption*

Tenure

2 Years

3 Years

5 Years

5 Years

6 Years

Coupon Rate {%pa}

11.50%

11.75%

11.75%

12.00%

NA

Effective Yield {%pa}

11.50%

11.75%

12.40%

12.00%

12.25%*

*Redemption amount of Rs. 2,000 per NCD

Company Background:

Muthoot Finance, India’s largest gold loan company in terms of loan portfolio and branch network, with gold loan portfolio of Rs. 23,336 crore as of 30th June 2012, comprising more than 60 lakh gold loan accounts served through a network of 3,780 branches. For FY12, company earned revenue of Rs. 4,537 crore and net profit of Rs. 892 crore. Company’s net worth stands at Rs. 3,172 crore as of 30th June 2012, with CAR of 19.42%. For Q1FY13, its revenue rose to Rs. 1,287 crore and net profit to Rs. 246 crore. Thus, the company enjoys sound financial position along with a healthy balance sheet. Funds raised via the NCD issue will be used in regular financing activities, investments and to repay existing liabilities.

Rate of Return:

Over 12% interest rate on 5 year NCDs with annual interest payment (Series III and IV) seems attractive for retail investment in fixed income securities, given the longer tenure of the instrument, ensuring that capital is earning higher rate. Also, Series V is an equally good option, due to doubling of investment in 6 years time. Neither any bank nor any company (with credible rating) is offering interest rates in double digit on fixed deposits of 5 years and above.

Previous NCD Issue:

Company had issued NCDs three times previously (Sep 2011, Jan 20112, Apr 2012). The 5 year NCDs from these previous issues are currently trading at yields of 12.12% to 13.41%, with average of 12.65%. However, these listed bonds have very low liquidity.

Conclusion:

Tax-free HUDCO bonds are currently trading at yields of about 7.6% on BSE. At 12% pa, Muthoot’s NCDs lead to effective post-tax return of 8.29%, assuming highest tax bracket of 30.90%. Hence, ignoring the time frame, these NCDs fare favourably against the listed tax-free bonds.

Recommendation:

The current NCD issue is attractive for retail investors as it offers high ‘fixed returns’ for a long-term duration of 5 and 6 years. It fares better than bank FD, company fixed deposits and listed tax free bonds with respect to rate of return. Those looking for diversified investment options can go for the issue with 5 or 6 years tenure i.e. Series III, IV or V, based on an individual’s cash flow needs.

Public Issue – Secured Redeemable Non-Convertible Debentures from SREI Infrastructure Finance

Introduction:

SREI Infrastructure Finance, 23year old listed NBFC, is entering the debt capital market with a public issue of secured redeemable non-convertible debentures (NCD) of face value Rs. 1,000 each to raise Rs. 75 crore with an option to retain another Rs 75 crore, taking the total fund raising to Rs. 150 crore.

Issue Details:

The first-cum-first serve issue opens on 20th September and closes on 25th October 2012, with an option in company’s hands to either close the issue earlier or extend the closing. Minimum application amount is Rs. 1 00,000 for series I and II while it is Rs 10,000 for series III and IV, and in multiples of Rs, 1,000 thereof across all series.

Rating: ‘AA’ by CARE and BRICKWORK indicating high degree of safety for timely servicing of financial obligations

Listing: To be listed on BSE with one NCD comprising a trading lot. NCD would be issued both in demat and physical (for individual investors) form.

What’s on offer: The 7 year NCD issue has 4 investment options as under:

Particulars

Series I

Series II

Series III

Series IV

Frequency On Interest  Payment

Monthly

Quarterly

Annual

Cumulative

Investors who can Apply

Individual/Huf

Individual/Huf

All

All

Tenure

7 Years

7 Years

7 Years

7 Years

Coupon Rate {% P.A}

Individual Investor

NA

NA

10.30%

NA

Non-Individual Investor

9.84%

9.92%

10.25%

NA

Effective Yield {% P.A}

Individual Investor

NA

NA

10.30%

10.25%

Non-Individual Investor

10.30%

10.30%

10.25%

10.41%

Put Option

After 5 Years

After 5 Years

After 5 Years Only For Individuals

After 5 Years Only For Individuals

Redemption Amount {Per NCD}
Individual Investor

Face Value + Accrued Interest

Face Value + Accrued Interest

Face Value + Accrued Interest

Rs. 2,000 {RS. 1,633} On Put

Non-Individual Investor

Rs.  1,980

Company Background:

SREI Infrastructure Finance provides financial products and services to its about 30,000 customers engaged in infrastructure development and construction. For FY12, consolidated total income stood at Rs. 2,446 crore with PAT of Rs. 123 crore. For Q1FY13, consolidated total income was Rs. 756 crore and PAT Rs. 22 crore. As of 30th June 2012, company had networth of Rs. 3,200 crore, on equity of Rs. 503 crore, leading to BVPS of Rs. 64. Its asset quality indicates gross NPAs of Rs. 110 crore and net NPAs of Rs. 99 crore, translating to net NPAs ratio of 0.78%.

Rate of Return: Not very attractive vis-à-vis offer by other companies on their secured NCDs like Religare and Muthoot, which enjoy credit rating one notch above SREI Infra.

Recommendation:

The current NCD issue is not attractive as its effective yields are low, versus other existing options, currently underway. Only positive is that NCDs have a longer tenure of 7 years as against 5-6 years by other issuers. One can give this a miss!