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

Posted on January 23, 2014 by Sree Lakshmi Reddy

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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IRFCL TAX FREE BONDS

Posted on January 9, 2014 by Sree Lakshmi Reddy

Introduction

Indian Railway Finance Corporation Limited (IRFCL), the dedicated financing arm of Indian Railways and wholly owned by Government of India, is entering the debt capital market on 6th January 2014, with an subject of Tax Free Bonds of features worth of Rs.1,000 each, in the nature of Secured exchangeable Non Convertible Debentures.

Issue Details

Closing on 20th January 2014, issue has a amount of Rs.1,500 crore, with an option in company’s hand to retain an over-subscription upto ledge limit of Rs.7,163 crore, taking total fund-raise to Rs. 8,663 crore. Smallest application quantity is Rs. 5,000, and in multiples of Rs, 1,000 subsequently. Allotment will be on primary come first serve basis.

Rating

AAA by CRISIL, CARE and ICRA, representing utmost degree of protection regarding timely servicing of financial obligations

Listing

National Stock Exchange and Bombay Stock Exchange, Bonds are to be issued both in substantial and dematerialized form, hence a demat bank account is not essential to purchase these bonds. Trading in the bonds will essentially be in the demat form.

Variation Offers

The Current Indian Railway Finance Corporation Limited bonds are being offered in 2 series with given below features

Particulars	Series I	Series II
Tenor	10Years	15 Years
Frequency of Interest Payment	Annual	Annual
Coupon Rate (%) Per Annual
For Retail Investors	8.48% P.A	8.65% P.A
Other Tan Retail Investors *	8.23% P.A	8.40% P.A
Put/Call Option	None	None

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

Allocation ratio: 40% for retail investors, 20% HNIs, 30% for Corporate, 10% for QIB

Rate of Return

Indian Railway Finance Corporation Limited L’s Fifteen year (Series 2) bonds carrying 8.65 percent per annual coupon for retail investors are comparable to 12.52 percent pre-tax return earned on other permanent income instrument, assuming the peak tax bracket of 30.9 percent for retail individuals. While these rates are higher than company’s previous issues of January and February 2013, they are minimum than token rates for fifteen years tenor of other tax free bonds currently open. HUDCO is offering 8.83 percent pa while IIFCL 8.73percent pa. However, no point applying in these issues, as they have previously been over-subscribed by over 4 and 2 times, correspondingly, implying a near-zero possibility of allotment.

National Housing Bank’s (NHB) tax free bond issue has been subscribed by over 4 times in two days itself (subscribed two-times-plus on Opening Day of 30th December 2013), forcing company to pre-pone concluding date to 1st January from 31st January 2014 earlier. NHB was the ‘perfect’ tax free bond – carrying highest AAA credit ranking, 20 year possession and striking token rate of 9.01% p.a. However, IRFCL is not offering a 20 year tenor bond.

Since tax free bonds keep a tally over company NCDs due to longer duration and higher tax-efficient returns, no point comparing this issue with NCDs of Manappuram, Muthoot and SREI Infra.

Recommendation

IRFCL bond issue is not the most striking, due to moderately minor tenure of 15 years. Also, voucher rates not the most excellent Advise to wait for other tax free bond issues, which are likely to release for subscription over the next couple of months.

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Housing and Urban Development Corporation

Posted on September 18, 2013 by Sree Lakshmi Reddy

Introduction

Housing and Urban Development Corporation (HUDCO) is a government-owned corporation in India, founded in 1970 with head quarters in New Delhi, is incoming to the debt capital market from 17 September’2013, through an issue of Tax Free Bonds of face value of Rs.1,000 each, in the temperament of Secured Redeemable Non Convertible Debentures.

Issue Details

Issue, closes on 14 October’2013, has a size of Rs.750 crore, with a choice in HUDCO’s hand to retain an oversubscription up to the projection limit of Rs. 4,809.20 crore. Minimum appliance is Rs. 5,000 and in multiples of Rs. 1,000 after that, at the same time allotment will be done on first come first dole out origin. Life form tax-free, the interest does not draw Tax Deduction at Source {TDS} nor do the bonds attract wealth tax. In addition, the bonds do not have any lock-in period.

Rating

Hudco Bonds were rated AA+ by CARE and India Ratings, signifying high degree of safety regarding timely servicing of financial obligations, are proposed to be listed on Bombay Stock Exchange.

Listing

Hudco Bonds were proposed 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 buy these bonds. Trading lot is one bond and must be essentially in done demat form only.

Proffer of the Issue

Bonds have3 different series under which they are being offered:

Particulars	Series I	Series II	Series III
Tenure	10 Years	15 Years	20 Years
Interest Payment	Annual	Annual	Annual
Coupon Rate (%) P.A
For Retail Investors #	8.39%	8.76%	8.74%
Other than Retail Investors	8.14%	8.51%	8.49%
Tax-Effective Yield (%) P.A (Assuming 30.90% Tax Free)
For Retail Investors #	12.14%	12.68%	12.65%
Other than Retail Investors	11.78%	12.32%	12.29%

# Retail investors defined as application up to Rs. 10 lakh from resident individuals, Hindu Undivided Family, Non Resident Indians and Qualified Foreign Investors being individual. 40 percent of the issue is reserved for retail investors, 30% for High Net worth Individuals, 20% for corporate and balance 10% for QIB.

Company Background

A mini-ratna, HUDCO is lends to housing and urban infrastructure projects across the country. In FY13, it posted top line of Rs. 2,900 crore and PAT of Rs. 700 crore, on net-worth of Rs. 6,500 crore. With low net Non Performing Assets of 0.83% as of 31 March’2013, it has a contented capital adequacy ratio of 23.24 percent. Hudco had sanctioned project worth Rs. 23,000 crore and pay out Rs. 6,000 crore in FY13 and targets to pay out Rs. 7,000 crore for the duration of FY14. For Q1FY14, it reported revenue of Rs. 617 crore plus PAT of Rs. 102 crore.

Rate of Return

This is the second tax-free bond issue this fiscal after REC (which closes on 16 September’2013), HUDCO is offering slightly higher coupon vis-a-vis REC. However, its credit rating of AA+ is a nick lower than REC’s AAA. On the other hand, that should not be prevention, the issue being a public sector undertaking with a track record of victorious bond issues.

The Fifteen year (Series II) bonds, carrying the highest coupon rate, are comparable to a 12.68 percent pre-tax return earned on other fixed income instruments, presumptuous the highest tax bracket of 30.9 percent for retail individuals. This is awfully good-looking rate as currently no bank is offering double digit interest rates on long term deposits. In reality, the 20 year Series III issue also carries a very attractive coupon of 8.74 percent which render to12.65 percent tax effective yield.

Before issued (in early 2013) Fifteen year HUDCO bonds are trading on Bombay Stock Exchange with yields of 7.61%-8.05%. Consequently, current rates are significantly higher.

The present issue is likely to witness overpowering response, comparable to REC which closes early on 16 September’2013, a week prior to its scheduled closure of 23 September’2013.

Recommendation

Present HUDCO bonds are very attractive and warrant subscription for debt investors. Both Series II and Series III are suggested, with prejudice towards the latter owing to its longer tenure.

Because this is the first public issue of tax-free bonds by the company this fiscal (having hoist about Rs. 2,400 crore during FY13), it hopes to exercise the green-shoe option and exhaust the entire shelf limit, given the very good-looking ticket rates. Issue mortal on first-cum-first-serve origin, retail investors must grab that application form at the initial.