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 [email protected]
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.
(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.
Thank you. Look forward to hearing from you
Please inform whenever there are good issues of TAXFREE Bonds with
attractive rate of interest. Thank you
Hi Joseph,
Please subscribe to our free newsletter and you’ll get updated with the new issues of tax-free bonds whenever they hit the markets.
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Please inform me whenever there are good issues of TAX FREE Bonds
with attractive interest rates. Thank you
Hi Manshu, Shiv,
Any news of upcoming tax free bonds for FY2014-2015?
-Vikas
Hi Vikas,
There is no update regarding it.
Hi Shiv,
As most of the TFB are closed now. Would you be able to help us with your insight on Central Public Center Enterprise ETF NFO coming next week.
As this would be the first time governement coming with such an ETF it would be interesting to know how it fits well in our portfolios.
Regards,
Parijat
Hi Parijat,
I was already planning to write a post on the same yesterday evening. Let me have some more info regarding the same and I’ll definitely cover it very soon.
Vikas, Since Shiv do not give individual suggestions, I would like to help you with my experience. You can go ahead and buy NHAI, NTPC , NHPC or NHB. You will get 8.6-8.9 % in any of this if you were to apply when some of this IPOs are still around. Once IPOs closes, again the yield is likely to come down.
Hi Shiv,
I know there are a lot of ongoing tax free bonds. Could you recommend a few bonds on the market with good liquidity and better yields than the currently open issues.
Thanks.
Hi Shiv,
Any info on AAI & Cochin Shipyard bond.
Do u think they will cum b4 31st March ?
Hi Rajan,
I’ve been told that AAI will not be able to issue tax-free bonds this financial year. Also, I have no info about Cochin Shipyard issue.
Thanks Shiv !
You are welcome!
Update 2 – ‘AAA’ rated NHB tax free bonds issue is getting opened on March 7th with the following coupon rates – 8.50% p.a. for 10 years, 8.93% p.a. for 15 years and 8.90% p.a. for 20 years. Issue size is Rs. 1,000 crore and will get closed on March 18th. NRIs cannot apply in the issue.
Hi Shiv,
Do you think this NHB issue will have a similar response as its 1st tranche ?
Thanks,
Gaurav
Hi Gaurav,
It might not attract a bumper response as good as the previous issue, but it should be an extremely good one for a smaller issue size and should get oversubscribed on the first day itself.
Hi Shiv, if the issue is oversubscribed on day1 itself then how much ? allotment happens for subscribers on day1?
Hi Rashmi,
In that case, allotment will be made on a pro-rata basis to each successful applicant.
Any retail investor holding 10L in first issue can apply for another 10 L in this issue and still maintain Retail status. Just reconfirming on this.
Yes George, you will still be considered as a retail investor to earn higher interest.
NTPC tax-free bonds issue of Rs 500 crore was completed on a private placement basis on February 25, 2014, with coupon rate of 8.19 per cent, 8.63 per cent and 8.61 per cent for 10, 15 and 20 years respectively, it added.
http://www.business-standard.com/article/pti-stories/ntpc-completes-tax-free-bond-issue-of-rs-500-crore-114022801235_1.html
Hi Shiv
I heard a rumour that NHB may not coming with public issue of tax free bonds , but will have only private placement. Do you know if NHB public issue of tax free bonds is confirmed? Not heard any start date or interest rates yet. I plan to subscribe in NHB TFB , if it is not coming , i better invest in other issues open now
Rregards
Ramadas
Hi Ramadas,
As per NHB’s public notice dated February 21, it has got CBDT approval for a public issue of Rs. 1,000 crore. So, I don’t think there is a possibility of NHB skipping its public issue.
Hi Shiv,
I am frequent Investor in these THB and want to understand how easy it is to withdraw from these bonds in case of an emergency.
Further I want to know how reliable are these AAA ratings as these ratings have proven to unreliable in the past for many companies.
Can you also update on the NTPC interest rates.
Thanks.
Hi Gaurav,
1. As far as liquidity is concerned, I would say these bonds are fairly liquid for an emergency exit. But, then an investor should be prepared to sell his/her holdings at whatever price the interested buyers are willing to offer in order to buy these bonds in the secondary market.
I would say these bonds offer liquidity which is considerably more than your real estate investment, but drastically lower than equity markets/mutual funds. I think I would compare liquidity of these bonds with that of ‘B’/’T’ category equity shares. Still I think liquidity is not a problem for any retail investor holding up to Rs. 10 lakh worth of bonds. You will not be required to sell your holdings at 20% lower circuit on any given day in case of any emergency exit.
2. I think credit rating of a company should be used as just an indicator to where the company stands. I would say that a credit rating is a reflection of what has happened in the past with the company and not its future. One should do his/her own company analysis before getting convinced with the credit profile of the company.
3. NTPC/NHB interest rates are yet to get announced.
Thanks Shiv. Please update on the launch date of Nhb bond and the interest rate as soon as you have the info.
Sure Rashmi, I’ll do that.
First day response not so good :
http://m.economictimes.com/markets/bonds/public-sector-companies-struggle-to-raise-capital-through-tax-free-bonds/articleshow/31183504.cms
Is NHB bond coming on this Monday ?
Hi Raj,
NHB issue is not opening on Monday. I have been told that it has been delayed to open on March 7th.
thank you as always
You are welcome! 🙂
Hi Shiv,
Can you please update about allotment basis? Is it Allotment on First Come First Served Basis? NHB/REC/HUDCO/IRFC
Hi Rohit,
Yes, all of these are on a “first-come-first-served” basis.
Hi Shiv,
For retail investor – is the 10 lakh limit per tax free bond? Can the combined investment in all tax free bonds exceed 10 lakhs?
Hi VJ,
Rs. 10 lakh investment limit is per tranche per issuer. You can invest in as many issues as you want and with as many as companies as you want, but your investment amount in a single issue should not cross Rs. 10 lakh.
Thanks
You are welcome!
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.
Is there any news or information available about TFBs for next financial year? Is there any hope of them continuing beyond this financial year?
Hi Parthiv,
It will get announced in July when the budget gets presented by the new government.
Hi Shiv,
Thanks for the timely info as always. It seems like coupon rates just keep going up. At least for 15 year bonds. Any forecast for next year bonds ?
Thanks Ketki!
With such volatile markets and uncertain economic environment, I am not in a position to forecast even next month’s coupon rates. So, forecasting coupon rates or even existence of tax free bonds next year is a very very difficult task. The only thing which we can do is to hope for the inflation to cool down and the next government to take some sensible policy decisions to boost India’s economic growth.