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.
IRFC TAX FREE BONDS ALLOTED ON 26MARCH2014.- THE BONDS WERE AAA+ RATED. YET INTEREST HAS NOT BEEN RECEIVED IN TIME.
April 15th is the interest payment date for IRFC tax-free bonds – http://www.onemint.com/2014/02/01/tax-free-bonds-fy-2013-14-interest-payment-date-date-of-allotment-maturity-date-bse-code-nse-code-other-info/
THANKS A LOT FOR THE PROMPT REPLY.
You are welcome!
What is the record date, and the date of interest payment, of HUDCO Tranche III tax free bonds issued in March 2014?
Should the bonds be purchased about a week or so before the record date, from the secondary market, for the interest to accrue to the purchaser?
Thanks.
Hi Shiv
I had applied for IRFC tax free bonds in physical form for my mother. I have got the allotment letter 4 months back , but no bonds are despatched yet. Karvy has no clue on when bonds will be despatched. How long does it take max for bonds to be dispatched once allotment letter is issued? My allotment letter tells company will despatch bonds before the max permissible time frame as law permits. Appreciate your input
Regards
Ramadas
Hi Ramadas,
This is something which is best answered by Karvy only. I must say the systems in place for delivering these bond certificates are quite pathetic and they take more than usual time to deliver these certificates as I think there is no time limit as such.
I am investing in Tax Free Bonds in my Trust A/c. which fall in to Cat. II
Now no new issue is coming now , and I would like invest in this bonds.
I would like to buy the bonds from the secondary market. My broker is charging me 0.50 % commission.
My request you to give me some name of the bonds ( both from NSE. And. BSE ) on which I will earn the interest above 8.40 %. after paying commission to the broker.
Sorry Paresh, we won’t be able to provide info regarding the same.
Mr. Paresh Patel,
I would like to buy tax free bonds from the market, if u bought it from the market pl. let me know how u buy. Some says u are not benefited from the buying it from MKT.,because u get it very low int.rates.
Thanking u.
I got the IRFC Tax Free Bond interest credit in to my Bank account on 29 th March.
Deemed date of allotment is March 26,2014 and interest will be paid on April 15 th every year.
So my question is that this interest which i received is a interest against my application money which will be TAXABLE and now i will receive another interest on April 15 th which is TAX FREE .[ for the period 26/03/2014 to 15/04/2014 ]
Please explain me about this.
Yes Paresh, that is correct. Interest on application money is taxable and subject to TDS as well. Interest from the date of allotment till the interest payment date(s) is tax-free. Further, it will remain tax-free for the rest of its maturity.
IRFC tax-free bonds to get listed on the NSE & BSE tomorrow i.e. March 28th, Friday.
Here are the NSE & BSE codes for the same:
8.44% 10-year bonds – BSE Code – 961883, NSE Code – ND
8.88% 15-year bonds – BSE Code – 961885, NSE Code – NE
Deemed date of allotment has been fixed as March 26, 2014. Interest will be paid on April 15th every year.
Have received allotment of IRFC TFBs in my DEMAT account. Interest is awaited
For information please