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]
Three tax free bond issues are getting launched from the coming Friday i.e. 28th of this month. These are from IRFC, REC and HUDCO. While IRFC and REC issues are ‘AAA’ rated, HUDCO issue is ‘AA+’ rated. As most of you are aware by now, issues which carry higher ratings also carry lower coupon rates. So, it is natural for the IRFC and REC issues to offer lower rate of interest.
While HUDCO has been able to offer 8.98% as its highest annual interest rate, the same stands at 8.88% for the other two issues. As the HUDCO issue is of Rs. 285 crore only, which is very small by its standards, I expect the issue to get oversubscribed on the first day itself. This makes me feel like that the investors would be more interested in a comparison between the IRFC and the REC issues. So, I would like to cover such a comparison in this post.
Size of the Issues – IRFC issue is bigger in size with the company planning to raise approximately Rs. 2,916.88 crore this time around, whereas REC has recently got the authorization to raise another Rs. 1,059.40 crore. Both the companies have reserved 40% of their respective issue sizes for the retail investors.
Closing Dates of the Issues – REC issue is scheduled to close on March 14, whereas IRFC has decided to keep it extremely short to close it on March 7.
20-Year Option – REC will offer 8.86% per annum for the 20-year option, whereas the IRFC issue will not carry the 20-year option. For the other two durations, both companies are offering the same coupon rates.
Ratings of the Issues – As mentioned above also, both these issues are ‘AAA’ rated. While the IRFC issue is rated by CRISIL, ICRA and CARE, the REC issue is also rated by these three rating agencies in addition to India Ratings as well.
Investor Categories & Allocation Ratio – As always, the investors have been classified in the following four categories and each category will have certain percentage of the issue sizes reserved during the allocation process:
Category I – Qualified Institutional Bidders (QIBs) – IRFC – 10% of the issue i.e. Rs. 291.69 crore is reserved; REC – 10% of the issue i.e. Rs. 105.94 crore
Category II – Non-Institutional Investors (NIIs) – IRFC – 30% of the issue i.e. Rs. 875.06 crore is reserved; REC – 25% of the issue i.e. 264.85 crore is reserved
Category III – High Net Worth Individuals including HUFs – IRFC – 20% of the issue i.e. Rs. 583.38 crore is reserved; REC – 25% of the issue i.e. 264.85 crore is reserved
Category IV – Retail Individual Investors (RIIs) – IRFC – 40% of the issue i.e. Rs. 1,166.75 crore is reserved; REC – 40% of the issue i.e. Rs. 423.76 crore is reserved
As always, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories.
NRI/FPI/QFI Investment – Both the companies have allowed Non-Resident Indians (NRIs) to participate in their respective issues, on a repatriation basis as well as on a non-repatriation basis. Qualified Foreign Investors (QFIs) category has been recently merged with the FIIs category to form a new category termed as Foreign Portfolio Investors (FPIs). FPIs have also been allowed to invest in these bonds now.
Listing – IRFC has decided to get its bonds listed both on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE), whereas REC bonds will get listed only on the BSE.
Interest on Application Money & Refund – Both the companies will pay interest to the successful allottees on their application money at the applicable coupon rates. Unsuccessful allottees will get interest @ 5% per annum on their refund money.
Interest Payment Dates – IRFC will pay the due interest on April 15th every year, whereas REC has fixed its interest payment date to be December 1st every year.
Though it is very difficult to make out which issue is superior between the two, I would personally prefer the IRFC issue due to its business fundamentals, bigger issue size and listing of its bonds on both the stock exchanges. But, if you have already invested with either of these companies earlier, then I think it would be better to go for the other company’s bonds in order to diversify your bond portfolio.
I would also like to wait for the NHB issue to declare its coupon rates sometime early next week. If NHB’s interest rates are higher, then I would rather prefer to go with the subsidiary of the central bank rather than these public sector enterprises.
What logic do you apply for investing in TFB when all are AAA rated?
Different companies have different fundamentals and interest rates. Also, not all the companies are ‘AAA’ rated.
Day 8 (March 11) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 159.23 crore as against Rs. 875.06 crore reserved
Category III – Rs. 188.97 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 426.47 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 869.68 crore as against total issue size of Rs. 2,917.26 crore
Day 8 (March 11) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 191.22 crore as against Rs. 264.84 crore reserved
Category III – Rs. 118.21 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 440.61 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 795.04 crore as against total issue size of Rs. 1,059.38 crore
Day 8 (March 11) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 23.38 crore as against Rs. 28.58 crore reserved
Category III – Rs. 21.60 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 199.73 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 244.72 crore as against total issue size of Rs. 286.40 crore
Day 7 (March 10) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 150.53 crore as against Rs. 875.06 crore reserved
Category III – Rs. 184.02 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 396.97 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 826.52 crore as against total issue size of Rs. 2,917.26 crore
Day 7 (March 10) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 98.52 crore as against Rs. 264.84 crore reserved
Category III – Rs. 116.88 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 400.57 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 660.98 crore as against total issue size of Rs. 1,059.38 crore
Day 7 (March 10) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 23.13 crore as against Rs. 28.58 crore reserved
Category III – Rs. 20.60 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 190.57 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 234.30 crore as against total issue size of Rs. 286.40 crore
what is the latest figures ?
Hi Shiv,
If one had some liquid cash in hand, where do you suggest one should invest REC, IRFC or IIFCL? or distribute equally among all of the three?
Also is there any other TFB expected this year?
Hi Prashant,
I would personally prefer IRFC, IIFCL and REC, in that order. No new tax free bond issue is expected this financial year now.
Thanks Shiv for your prompt reply, I highly appreciate that. As always you rock!!!
Thanks Prashant!
Day 6 (March 7) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 147.28 crore as against Rs. 875.06 crore reserved
Category III – Rs. 171.87 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 360.50 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 774.66 crore as against total issue size of Rs. 2,917.26 crore
Day 6 (March 7) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 71.91 crore as against Rs. 264.84 crore reserved
Category III – Rs. 103.45 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 339.43 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 559.80 crore as against total issue size of Rs. 1,059.38 crore
Day 6 (March 7) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 10.47 crore as against Rs. 28.58 crore reserved
Category III – Rs. 17.30 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 172 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 199.77 crore as against total issue size of Rs. 286.40 crore
Day 5 (March 6) subscription figures for IRFC Tranche II:
Category I – Rs. 95.01 crore as against Rs. 291.69 crore reserved
Category II – Rs. 135.37 crore as against Rs. 875.06 crore reserved
Category III – Rs. 152.50 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 322.21 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 705.08 crore as against total issue size of Rs. 2,917.26 crore
Day 5 (March 6) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 70.56 crore as against Rs. 264.84 crore reserved
Category III – Rs. 98.80 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 306.02 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 520.38 crore as against total issue size of Rs. 1,059.38 crore
Day 5 (March 6) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 7.18 crore as against Rs. 28.58 crore reserved
Category III – Rs. 16.30 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 157.06 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 180.54 crore as against total issue size of Rs. 286.40 crore
How can one apply for Physical Bonds, some one who is not having Demat account.?
Hi Shashwat,
To apply these bonds in physical form, you need to approach a broker/service provider like us. We (Ojas Capital), as a brokerage firm, help investors apply for these bonds on a national level. Here is the procedure to apply it in the physical form:
* Download the physical form from the following link – http://www.akstockmart.com/akintra/BA/DNLDFORM.aspx?refno=dU6gu20m1nc= and duly fill it.
* Mail us the scanned copy of your duly filled form and we’ll do the bidding on the stock exchange, which is mandatory before banking the application form.
* We’ll let you know the BSE/NSE bidding code, which you’ll be required to manually write on the application form.
* After that, if possible, we’ll get the form picked from your place or you can courier the form to us, along with your self-attested copies of PAN card, address proof and a cancelled cheque.
For any clarification or further info, you can contact me at +919811797407 or mail me at [email protected]
Please send me the details of daily subscription of recent HUDCO / IRFC / REC please
I need your advice.
I have approx. 5,00,000 in tax free bonds of REC having less than 8.5% interest (approx. 7.7%) with 10 years tenure. In present time I can see that current tax free bonds provide around 8.8% for 15 years. So I am thinking of selling that bond that are having 7.7% interest (10 years) and invest in current 8.8% (15 years) so that I will gain something more.
Please suggest your views.
Hi Viral,
Sorry, but I cannot take individual queries here on this forum. Still I would say that you should go for those bonds which give you the highest yield to maturity (YTM).
Hi Viral.
Selling 7.7% bond and investing in 8.8 % bonds. You need to be very careful. The 7.7% bond have a step down of 50 Basis points while selling since you are a retail investor. You will also end up paying the brokerage. If you were to do this, you will end up getting less than 7.7% for the bonds which buy considering of additional Rs 50 for losing the retail benefit in existing bond. Just to demonstrate , you may get around Rs 900 for the bond you are holding. So you will end up buying around 440 bonds with 8.8%. Do your maths as Shiv mentioned YTM plays key.
IRFC issue closing date has been extended to close on March 14th.
Day 4 (March 5) subscription figures for IRFC Tranche II:
Category I – Rs. 95 crore as against Rs. 291.69 crore reserved
Category II – Rs. 135.17 crore as against Rs. 875.06 crore reserved
Category III – Rs. 142.70 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 281.50 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 654.37 crore as against total issue size of Rs. 2,917.26 crore
Day 4 (March 5) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 58.18 crore as against Rs. 264.84 crore reserved
Category III – Rs. 86.10 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 266.10 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 455.38 crore as against total issue size of Rs. 1,059.38 crore
Day 4 (March 5) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 6.49 crore as against Rs. 28.58 crore reserved
Category III – Rs. 14.50 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 139.76 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 160.75 crore as against total issue size of Rs. 286.40 crore
‘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 this issue.
Day 3 (March4) subscription figures for IRFC Tranche II:
Category I – Rs. 95 crore as against Rs. 291.69 crore reserved
Category II – Rs. 70.95 crore as against Rs. 875.06 crore reserved
Category III – Rs. 102.05 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 237.96 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 505.95 crore as against total issue size of Rs. 2,917.26 crore
Day 3 (March 4) subscription figures for REC Tranche II:
Category I – Rs. 45 crore as against Rs. 105.94 crore reserved
Category II – Rs. 54.30 crore as against Rs. 264.84 crore reserved
Category III – Rs. 69.33 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 221.09 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 389.72 crore as against total issue size of Rs. 1,059.38 crore
Day 3 (March 4) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 4.14 crore as against Rs. 28.58 crore reserved
Category III – Rs. 13.03 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 117.87 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 135.04 crore as against total issue size of Rs. 286.40 crore
Hi Shiv,
Can we have today’s subscription figuers please?
Thanks
Shiv, what happens if IRFC bond is not filled upto its base size 1500 crore. Will it be refunded.
Hi Raj,
IRFC can retain whatever amount it is able to raise during the offer period as there is no stipulated minimum subscription amount for this issue.
Day 2 (March 3) subscription figures for IRFC Tranche II:
Category I – Rs. 95 crore as against Rs. 291.69 crore reserved
Category II – Rs. 62.15 crore as against Rs. 875.06 crore reserved
Category III – Rs. 84.21 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 183.83 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 425.19 crore as against total issue size of Rs. 2,917.26 crore
Day 2 (March 3) subscription figures for REC Tranche II:
Category I – Rs. 20 crore as against Rs. 105.94 crore reserved
Category II – Rs. 28.34 crore as against Rs. 264.84 crore reserved
Category III – Rs. 35.47 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 173.10 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 256.91 crore as against total issue size of Rs. 1,059.38 crore
Day 2 (March 3) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 2.96 crore as against Rs. 28.58 crore reserved
Category III – Rs. 11.47 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 95.55 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 109.98 crore as against total issue size of Rs. 286.40 crore
Shiv,
From subscription status, it seems, like me, others too are out of money at the end of financial year :).
Hi Pinaki,
There is no doubt that the investors have exhausted most of their investment surplus in the earlier issues, but investors still have plenty to choose from as there are six issues currently open and two are in the pipeline. I think they are going to finalize their investment decisions once NHB and/or NTPC rates get announced.
Shiv, Thanks for this update! Hoping to put some money in these issues when the Tata Cap NCDs redumption amount gets disbursed on 6-Mar-14.
Great !!
Day 1 (February 28) subscription figures for IRFC Tranche II:
Category I – Rs. 45 crore as against Rs. 291.69 crore reserved
Category II – Rs. 33.69 crore as against Rs. 875.06 crore reserved
Category III – Rs. 63.32 crore as against Rs. 583.76 crore reserved
Category IV – Rs. 96.62 crore as against Rs. 1,166.75 crore reserved
Total Subscription – Rs. 238.63 crore as against total issue size of Rs. 2,917.26 crore
Day 1 (February 28) subscription figures for REC Tranche II:
Category I – Rs. 20 crore as against Rs. 105.94 crore reserved
Category II – Rs. 24.72 crore as against Rs. 264.84 crore reserved
Category III – Rs. 19.40 crore as against Rs. 264.84 crore reserved
Category IV – Rs. 90.46 crore as against Rs. 423.76 crore reserved
Total Subscription – Rs. 154.58 crore as against total issue size of Rs. 1,059.38 crore
Day 1 (February 28) subscription figures for HUDCO Tranche III:
Category I – No subscription as against Rs. 28.58 crore reserved
Category II – Rs. 2.72 crore as against Rs. 28.58 crore reserved
Category III – Rs. 6.20 crore as against Rs. 57.76 crore reserved
Category IV – Rs. 53.82 crore as against Rs. 171.48 crore reserved
Total Subscription – Rs. 62.74 crore as against total issue size of Rs. 286.40 crore