Ennore Port Bonds Issue – Offering 9% Tax-Free Interest

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]

As the IREDA issue is set to open for subscription on Monday, Ennore Port has decided to give it a competition by offering interest rates which are 20 basis points (or 0.20%) higher than the rates IREDA is offering. But, most importantly the Ennore Port issue is ‘AA’ rated as compared to the IREDA issue which is ‘AAA’ rated.

Had it been a case of comparing NCD issues of two private companies, I would have definitely and completely avoided the ‘AA’ rated issue. But, in case of two government owned companies, the matter becomes a little trickier and a close analysis is required to take your final decision. I’ll try to do the same here in this post.

The issue is slated to open for subscription from Tuesday i.e. February 18th and will get closed on March 14th, if it remains undersubscribed till that time and the company decides not to extend the closing date.

Size of the Issue – Ennore Port has been authorized to raise Rs. 500 crore from tax free bonds this financial year and the company plans to mop up the entire amount from this issue itself, including the green shoe option of Rs. 250 crore.

Rating of the Issue – I think this would be a concern area for most of the investors despite of the fact that it is offering relatively higher rate of interest. The issue has been rated ‘AA’ by two credit rating agencies, CARE and ICRA.

Like all other tax free bond issues, these bonds are also ‘Secured’ in nature and certain assets of the company, located within the port limits of Latitude 13? 17’ 36” North and Longitude 80? 20’ 51” East, along with the right to occupy and use the land over which the assets are situated, will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – As the issue is rated ‘AA’, its coupon rates are higher by 20 basis points or 0.20% as compared to the IREDA issue and IIFCL issue which are also getting opened from the coming Monday. Ennore Port is offering 9% per annum for its 15-year and 20-year options and 8.61% per annum for the 10-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As always, these rates would be lower by 25 basis points (or 0.25%) for the high net worth individuals (HNIs) and non-retail investors i.e. institutional investors as well as corporate investors.

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each. Though there is no upper limit for the investors to invest in this issue, an investor investing more than Rs. 10 lakhs will be categorized as an HNI and will get a lower rate of interest.

NRI Investment – Like the IREDA issue, Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) are not eligible to invest in this issue 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 size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 50 crore

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved i.e. Rs. 100 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 30% of the issue is reserved i.e. Rs. 150 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 200 crore

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Listing – Ennore Port has decided to get these bonds listed only on the Bombay Stock Exchange (BSE) and has successfully got the necessary in-principle listing approval for the same. The bonds will get allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Investors have the choice to apply for these bonds either in physical form or in demat form, whichever they like.

No Lock-In Period – These tax-free bonds will be freely tradable and do not carry any lock-in period. So, an investor may sell them at the market price whenever he/she wants after these bonds get listed on the BSE.

Interest on Application Money & Refund – Ennore Port will pay interest to the successful allottees on their application money at the applicable coupon rates, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

Interest Payment Date – Ennore Port has not fixed the date on which it will be paying its annual dividend and has decided to make its first interest payment exactly one year after the deemed date of allotment. As the deemed date of allotment will be fixed just before the listing date, I will update this post as and when it gets announced.

Profile and Financials of Ennore Port

Ennore Port is a public sector enterprise in which the Ministry of Shipping, GoI holds 66.67% stake and the rest 33.33% stake is held by the Board of Trustees, Chennai Port Trust.

The company is the developer and operator of Ennore Port, which was originally conceived as a satellite port to Chennai Port, primarily to handle thermal coal to meet the requirement of Tamil Nadu Electricity Board (TNEB) and thereafter the scope of the port was expanded taking into account subsequent developments plans of the Tamil Nadu Government to set up liquefied natural gas (LNG), petrochem and naphtha cracker power projects.

Ennore Port functions on the “Landlord Port Model” basis whereby the port constitutes a landlord, which manages the basic port assets by leasing land and basic infrastructure to port operators. Ennore Port carries operating functions such as planning, safety, pilotage, mooring, navigation and overall coordination.

It also provides the basic infrastructure facilities like construction of breakwaters, deepening and maintenance of port channels, dredged basin/channel, road and rail infrastructure for connectivity to hinterland, aids to navigation, fire fighting facilities, utilities, water and power supply and manage the resources apart from regulatory functions and overall port planning & development.

The company was conferred with Mini Ratna Category I status on June 30, 2009 by the government based on its consistent profitability over the previous three years.

During the financial year ended March 31, 2013, Ennore Port reported operating revenue of 320.21 crore and net profit of Rs. 173.37 crore as against operating revenues of Rs. 248.64 crore and net profit of Rs. 96.72 crore during the financial year ended March 31, 2012. Its relative performance during six months ended September 30, 2013 has also been relatively encouraging.

After analysing the financials and credit rating of Ennore Port, I would personally prefer investing my money in the IREDA issue as the differential of 0.20% per annum is just Rs. 200 on an investment of Rs. 1,00,000 and I would like to keep my investment safe rather than running after higher returns.

Application Form of Ennore Port Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in Ennore Port tax-free bonds, you can contact me at +919811797407