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 31^st 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:

 # 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 3^rd 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

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