Category: Investments

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]

After India Infoline Finance Limited (IIFL), the 98.87% subsidiary of India Infoline Limited (IIL), successfully raised Rs. 1,050 crore from its 12% NCD issue in September this year, its own wholly owned subsidiary India Infoline Housing Finance Limited (IIHFL) has now come up with its issue of non-convertible debentures (NCDs).

Before we check out more about the company and its financials, let’s take a look at some of the main features of the issue first.

Coupon Rate – The issue is simply uncomplicated. It is offering only one choice of coupon rate i.e. 11.52% per annum payable monthly and that too, only for 60 months. Effective yield comes out to be 12.15% per annum. But, mind it that it is taxable as per the tax slab of the investor and is also subject to TDS, if taken in physical form.

Size of the Issue – Base size of the issue is Rs. 250 crore and the company has the right to exercise the green-shoe option to retain oversubscription to the tune of another Rs. 250 crore, thus making it a Rs. 500 crore issue.

NRI Investment – Non-Resident Indians (NRIs) are not allowed to invest in this issue.

Opening/Closing Date – The issue is scheduled to open on Thursday, 12th of December and will remain open for subscription for just 7 working days to close on Friday, 20th of December. The company has the option to close it earlier or extend it beyond the closing date, depending on the investors’ response to the issue.

Minimum Investment – If you want to subscribe to this issue, you need to invest at least Rs. 10,000 i.e. 10 NCDs worth Rs. 1,000 each.

Listing – The company has decided to list these NCDs on the National Stock Exchange (NSE) as well as on the Bombay Stock Exchange (BSE) and the listing will happen within 12 working days from the closing date of the issue.

Demat A/c. Not Mandatory – Though these NCDs will get listed on the stock exchanges, it is not mandatory to have a demat account to invest in this issue. You can subscribe for these NCDs in physical form as well, like you invest in bank fixed deposits (FDs) or post office schemes.

Only the investors, who subscribe for it in demat form, will be able to sell/trade them on the stock exchanges and will not be subject to any TDS on the interest income.

No Put/Call Option – The investors subscribing for these NCDs in physical form will have no option to redeem/sell them before maturity, as the company has not given put option to its investors. At the same time, the company will not be able to call its option to return investors’ money before the maturity period.

Credit Rating – CRISIL and CARE have been appointed as the credit rating agencies and have rated the issue as ‘AA-/Stable’ and ‘AA-’ respectively.

Categories of Investors – The company has decided to categorise investors in the following three categories:

Category I – Qualified Institutional Bidders (QIBs)

Category II – Non-Retail Investors including HUFs, Corporates etc.

Category III – Retail Investors including HUFs investing Rs. 10 lakh or below

Category Reservation – 50% of the issue size i.e. Rs. 250 crore, has been reserved for Category III retail investors, 35% i.e. Rs. 175 crore for Category II non-retail investors and 15% i.e. Rs. 75 crore for Category III institutional investors.

Allotment on FCFS Basis – As with most of these issues, allotment in this issue will be made on a first come first serve (FCFS) basis.

Interest Payment Date – IIHFL has decided to pay interest on the investors’ money on a monthly basis, but has not fixed the date of interest payment as yet. Interest payment will start from one month after the deemed date of allotment and will keep on getting paid on the same date every month.

Profile & Financials of India Infoline Housing Finance Limited (IIHFL)

India Infoline Housing Finance Limited (IIHFL) is a wholly owned subsidiary of India Infoline Finance Limited (IIFL), which is a 98.87% subsidiary of India Infoline Limited (IIL). As its name clearly indicates, the company offers housing loans and loans against property (LAP).

IIHFL received the certificate of registration from the National Housing Bank (NHB) to carry on the business as a Housing Finance Company (HFC) on February 3, 2009, which makes it a company with short operational history.

To measure the scale of its operations, I tried to do some comparison of its financials with that of its parent company, IIFL and IIL, the parent company of IIFL. Here are certain tables which carry some relative data for comparison:

These tables clearly show that IIHFL is a very small company relative to IIFL and IIL. Also, though the company deals in secured financing only, which ensures lower NPAs and lesser recovery related problems, its business model is very much concentrated to a single segment i.e. housing loans and loans against property. This makes it more vulnerable to adverse market conditions including intense competition, an economic downturn or a sudden downward movement in real estate prices.

IIFL, in its September issue, offered coupon rates of 12% per annum. It is really surprising for me to see the parent company offering higher rate of interest and its subsidiary, of a much smaller size, offering a lower rate of interest @ 11.52% per annum.

Personally, I won’t put my money into this issue and won’t advise any of my clients either, except somebody who is not liable to pay any taxes and wants regular income on a monthly basis.

Application Form for IIHFL NCDs

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 IIHFL NCDs, you can contact me at +919811797407

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]

India Infrastructure Finance Company Limited (IIFCL) is back again to offer its tax-free bonds and as expected this time, it is carrying higher rate of interest for all the maturity periods. The issue is getting opened for subscription from Monday, 9th of December and is scheduled to get closed along with the HUDCO 9.01% issue on January 10th, 2014, which is a Friday.

Size of the Issue – IIFCL raised Rs. 1,213.01 crore from its Tranche I issue in October and plans to mop up another Rs. 3,000 crore from this issue, including the green shoe option of Rs. 2,000 crore.

If the company is able to successfully raise its target amount of Rs. 3,000 crore from this issue, then it plans to launch its Tranche III issue sometime in January again.

Categories of Investors & Allocation Ratio – Investors have been categorised in the four usual categories and the percentage allocation has been the same as it was in IIFCL’s first issue:

Category I – Qualified Institutional Bidders (QIBs) – 15% of the issue is reserved i.e. Rs. 450 crore

Category II – Non-Institutional Investors – 20% of the issue is reserved i.e. Rs. 600 crore

Category III – High Net Worth Individuals including HUFs – 25% of the issue is reserved i.e. Rs. 750 crore

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved i.e. Rs. 1,200 crore

NRIs Ineligible to Invest – Once again, IIFCL has not allowed Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) to participate in this issue.

Coupon Rates on Offer – Coupon rates in this issue are absolutely same as those got offered in the NTPC issue – 8.91% per annum for the 20 year option, 8.73% per annum for the 15 year option and 8.66% per annum for the 10 year option.

These rates are applicable for the retail investors investing Rs. 10 lakh or below. All other investors will see a cut of 25 basis points or 0.25% per annum for the respective maturity periods.

Rating of the Issue – Like its previous issue, IIFCL Tranche II issue is also ‘AAA’ rated. CARE, ICRA, Brickwork Ratings and India Ratings, all these four rating agencies have assigned their highest credit rating to this issue.

These bonds are again ‘Secured’ in nature as certain receivables of the company will be charged equivalent to the outstanding amount of the bonds.

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 exchange.

Listing – IIFCL will get these bonds listed only on the Bombay Stock Exchange (BSE). As required by the listing rules of the SEBI, the company has committed to get the bonds allotted and listed within 12 working days from the closing date of the issue.

No Lock-In Period – As these bonds are freely tradable, an investor may sell them on the BSE whenever he/she wants after these bonds get listed on the exchange. That is how these bonds do not carry any lock-in period.

Demat/Physical Option – Though these bonds are tradable if taken in the demat form, investors have the choice to subscribe for these bonds in physical form as well, if they don’t have a demat account or they don’t want to take these bonds in the demat form.

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

Minimum Investment – Investors are required to invest a minimum of Rs. 5,000 in this issue i.e. at least 5 bonds of Rs. 1,000 face value each.

Interest Payment Date – IIFCL has not fixed the date of interest payment for this issue as yet. It has decided to pay its first due interest exactly one year after the deemed date of allotment.

NTPC issue, which got closed on Thursday, received an overwhelming response from all the categories of investors. As IIFCL is offering coupon rates absolutely same as those offered by NTPC, it is very much clear that these tax-free interest rates are very attractive.

Though I don’t expect this issue to get subscribed as fast as the NTPC issue, the investors, who missed out on the NTPC issue and/or want to invest only in ‘AAA’ rated securities, I think this issue offers a very good opportunity.

Also, a number of macro economic data is expected to get released sometime next week here, such as trade deficit for the month of November, IIP growth figures, CPI inflation, WPI inflation etc. This data will be very crucial for the RBI Governor Dr. Raghuram Rajan to take his final decision for the RBI’s monetary policy of December 18th.

One more rate hike would once again ruin the mood of the market participants in the bond markets and result in a jump in the G-Sec yields. Investors should keep a close eye on all these events also.

Application Form of IIFCL Tax Free Bonds

IIFCL Tax-Free Bonds – Bidding Centres

IIFCL Tax-Free Bonds – Banking Matrix

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 IIFCL tax-free bonds, you can contact me at +919811797407

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]

NTPC (BSE:532355), the country’s largest power generator and a ‘Maharatna’ company, is set to enter the battlefield of tax-free bond issues from Tuesday, December 3rd. It would become the sixth company to do so this financial year after REC, HUDCO, IIFCL, PFC and NHPC.

The issue will remain open for just ten working days to get closed on December 16th i.e. Monday.

Size of the Issue – NTPC has been authorized to raise Rs. 1,750 crore from tax free bonds this financial year. The company plans to mop up the whole of Rs. 1,750 crore from this issue itself, including the green shoe option of Rs. 750 crore, as the base issue size is Rs. 1,000 crore.

Rating of the Issue – NTPC is a big company with market capitalization of Rs. 121,497 crore as compared to REC’s market cap of Rs. 22,376 crore, NHPC’s market cap of Rs. 22,326 crore and PFC’s market cap of Rs. 20,956 crore. Considering its big size and strong fundamentals, CRISIL and ICRA have assigned ‘AAA’ rating to the issue.

Like all other tax free bond issues, these bonds are also ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

Coupon Rates on Offer – As the issue is rated AAA, the coupon rates are lower by 10 basis points or 0.10% lower than that of HUDCO. NTPC is offering 8.66% per annum for its 10-year option, 8.73% per annum for the 15-year option and 8.91% per annum for the 20-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 non-retail investors.

NRI Investment – Repatriation Not Allowed – Non-Resident Indians (NRIs) are also eligible to invest in this issue, but only on a non-repatriation basis. NRI investors will not be allowed to repatriate its interest amount or maturity proceeds outside India.

QFI Investment – Also, unlike HUDCO tax free bonds, Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

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. 175 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category III – High Net Worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 437.50 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 700 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 – NTPC has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE) and has successfully got  the necessary in-principle listing approval also from these exchanges. 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 are freely tradable and do not carry any lock-in period. An investor may sell them at the market price whenever he/she wants after these bonds get listed on the NSE or BSE.

Interest on Application Money & Refund – NTPC 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.

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.

Interest Payment Date – NTPC will make its first interest payment exactly one year after the deemed date of allotment. As the deemed date of allotment will be announced just before the listing date, I will update this post as and when it gets announced.

NTPC is ranked fourteenth among the top Indian companies by market capitalization. Also, at present, there are only seven central public sector enterprises (CPSEs) which have been conferred the status of Maharatna and NTPC is one of them.

Among thirteen companies, which have been authorized to issue tax free bonds this financial year, NTPC is the only company which has this Maharatna status. In fact, the company this year in March got awarded as the most efficient Maharatna in manufacturing for the year 2012.

As NTPC is fundamentally a better company, the issue is rated ‘AAA’ and the issue size is relatively smaller at Rs. 1,750 crore, I think its coupon rates are attractive enough for the issue to get oversubscribed in the first week itself. I expect the investors’ response to be even better than that for NHPC and the company to get it preclosed much before its official closing date of December 16th.

Also, I expect the issue to provide some listing gains also, like it has been the case with NHPC bonds and PFC bonds. Let us see if it meets my expectations or not.

Application Form of NTPC Tax Free Bonds

NTPC Tax-Free Bonds – Bidding Centres

NTPC Tax-Free Bonds – Banking Matrix

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 NTPC tax-free bonds, you can contact me at +919811797407

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]

After a month long break, tax free bond issues are back and the 10-year options are looking much healthier now carrying annual coupon rates of 8.76% and 8.66% for ‘AA+’ rated HUDCO issue and ‘AAA’ rated NTPC issue respectively, as against its previous highs of 8.43% for ‘AAA’ rated PFC & NHPC issues and 8.39% for ‘AA+’ rated HUDCO issue.

While this jump has come due to a consistent rise in the yield of the benchmark 7.16% 10-year government bond, the coupon rates with 15-year option and 20-year option have been the highest ever with the HUDCO issue as it is rated ‘AA+’ and carries a leverage of 10 basis points (or 0.10% per annum). I’ll cover the HUDCO issue today and the NTPC issue tomorrow.

HUDCO is launching the second tranche of its tax free bonds from Monday, December 2nd and it will be the first ever tax free bond issue to cross the psychological mark of 9% coupon rate.

Size of the Issue – HUDCO has set the base issue size at Rs. 500 crore with an option to retain oversubscription up to Rs. 2,439.20 crore. The company has already raised Rs. 2,560.80 crore in its first tranche and through a private placement. I think this issue is attractive enough for it to become the last issue from HUDCO’s stable.

Rating of the Issue – Like Tranche I, this issue has also been rated ‘AA+’. CARE and India Ratings are the two companies which have passed their opinion to assign this rating to the current issue.

Again, the bonds are ‘Secured’ in nature as certain receivables of the company will be charged to the extent of amount to be mobilized under the issue. Also, as HUDCO is wholly-owned by the government of India, I would consider the investors’ investments to be comfortably safe in the issue.

OK to NRI Investment – Non-Resident Indians (NRIs) are eligible to invest in this issue, on a repatriation basis as well as on non-repatriation basis. Qualified Foreign Investors (QFIs) are also eligible.

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 for the allocation:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved

Category II – Non-Institutional Investors (NIIs) – 20% of the issue is reserved

Category III – High Net Worth Individuals including HUFs, NRIs & QFIs – 30% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs, NRIs & QFIs – 40% of the issue is reserved

First Come First Served Allotment – 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 – Bombay Stock Exchange (BSE) is the only exchange on which these bonds will get listed and the exchange has given its in-principle listing approval to the bonds issued under this tranche. As with all the recent issues, these bonds also will get allotted and listed within 12 working days from the closing date of the issue.

Demat/Physical Option – Investors can apply for these bonds either in physical form or in demat form, as per their comfort and requirement.

No Lock-In Period – These bonds are offering good rate of interest which is tax-free also under Indian taxation laws. As your investment does not provide any tax deduction, there isn’t any lock-in period with these bonds. As these bonds get listed on the BSE, you may sell them whenever you want at the market price.

Interest on Application Money & Refund – HUDCO is the only company which pays the same rate of interest as the applicable coupon rate is on the application money as well as on the money due for a refund. So, with the 20-year option, you’ll get 9.01% as the rate of interest on your application money as well as the refund amount.

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. Retail Investors’ investment limit stands at Rs. 10 lakhs, beyond which they will be considered as HNIs and will get a lower rate of interest.

Interest Payment Date – HUDCO has not announced the interest payment date of this issue as yet. I will update this post as and when it gets announced at the time of listing.

While it will be a bonanza for the fixed income investors, I’ll consider this to be a bad situation for the commercial banks, the government and the borrowers. Let’s check how.

Many people have been breaking their fixed deposits to invest in these tax free bonds. It is putting a lot of pressure on the banks to either hike their deposit rates or increase premature withdrawal charges.

As the money is moving out of taxable instruments like fixed deposits, post office schemes etc., the government is also losing out a big amount in tax revenues.

Higher rate of interest will force banks to hike their lending rates also in order to maintain their net interest margins (NIMs) and this outcome will put an additional burden on the borrowers.

With a huge difference between the 10-year interest rate and the 20-year or 15-year rates, I used to prefer the 20-year or 15-year options earlier. But, as the difference has narrowed down considerably, the 10-year option has also become quite attractive now. However, I still prefer the longer duration options as I think it is better to stay invested with longer duration bonds when the interest rates get higher.

Though the issue is scheduled to get closed on January 10, 2014, I really doubt that it would continue that long. I expect it to get closed earlier than that given other companies don’t offer a similar or higher rate of interest.

With coupon rate crossing 9% now on these tax free bonds, there is no reason for the investors to ignore such high rate of interest and keep investing their fresh money into fixed deposits or keep their money invested in it.

Application Form of HUDCO Tax Free Bonds

HUDCO Tax-Free Bonds – Bidding Centres

HUDCO Tax Free Bonds – Banking Matrix

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 HUDCO tax-free bonds, you can contact me at +919811797407

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]

With rising inflation and high fiscal deficit here in India, yields on government securities are also rising and high G-Sec yields bring along some good investment opportunities for the prospective tax-free bond investors. Many of the investors, who could not invest in the previous five tax-free bond issues of REC, HUDCO, IIFCL, PFC and NHPC, have been eagerly waiting for the new issues to get launched.

A few days back Ramadas asked me if I know when the next tax free bond issue will hit the market. Here is what he had to say:

Ramadas November 19, 2013 at 7:16 am

Hi Shiv

Do you know when next tax free bond issue will hit the market? I see IRFC has already filed prospectus with SEBI. NTPC and NHB are in the news. Any confirmed dates when next tax free bonds will be issued?

I have received many such queries in the past 15-20 days as many people have been asking this question on different posts.

As none of the companies has filed the final prospectus for its issue, nobody knows the exact opening dates of the upcoming tax free bond issues. But, with whatever information I have and based on the dates of filing of their draft shelf prospectus, here is the list of tax free bond issues which are going to hit the streets in the next one month or so.

IIFCL Issue – Last week of November – IIFCL announced earlier this month that it would launch the second tranche of its tax free bonds in the third or the fourth week of November. IIFCL has already raised around Rs. 4,200 crore out of Rs. 10,000 crore it has been allowed to raise from tax-free bonds this financial year.

HUDCO Issue – Last week of November – I have been told by a close associate that HUDCO is also planning to launch the second tranche of its tax-free bonds issue in the next 3-5 days time. The company could raise around Rs. 2,400 crore in the first tranche which got closed on October 14. HUDCO still has the authority to raise another Rs. 2,400 crore.

IRFC Issue – First week of December – IRFC filed the draft shelf prospectus with SEBI to raise Rs. 10,000 crore from its tax-free bonds issues on November 11. As observed in the past, it takes around 15-20 days for a company to launch its public issue from the date it files the draft shelf prospectus.

Also, as Shashwat shared it yesterday, an official of IRFC has told Deccan Herald that it is planning to launch its public issue in December. Taking a cue from it, I think IRFC issue should hit the streets in the first week of December.

NTPC Issue – First week of December – Just a few days after IRFC did it, NTPC also filed the draft shelf prospectus on November 15 to raise Rs. 1,750 crore from tax-free bonds. So, I expect NTPC issue also to hit either in the first week or the second week of December.

NHB Issue – Second week of December – Though NHB raised Rs. 900 crore from these bonds through private placement in August this year, it has taken more than usual time to do it through its public issue. But, now they have officially announced to launch its issue in the second week of December. I hope they do not delay it further.

NHAI Issue – Second half of December – Last month, NHAI announced its plan to raise funds through these bonds sometime in December. But, as the company has still not filed its draft shelf prospectus as yet, I do not see the issue hitting the streets before second half of December.

November was a dry month as far as tax free bond issues are concerned. But, if all these issues get launched sometime next month, it would really create a glut for these bonds in the market.

Thanks to the high interest rates scenario, these companies would find it less difficult to attract investors’ money to get invested in these bonds.

I’ll update this post as and when I have any information about any new issue getting launched and the coupon rates it is going to carry. If any of you get any kind of information, please share it here so that all of us benefit out of it.

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 Muthoot Finance NCD issue gets preclosed on Monday, Shriram City Union Finance (SCUF) is also launching its issue of non-convertible debentures (NCDs) from the same day, November 25th. The company plans to raise Rs. 200 crore from the issue, including Rs. 100 crore of green shoe option.

SCUF has decided to offer an annual coupon rate of 11% for a period of 36 months, 11.25% for 48 months and 11.50% for 60 months to the retail investors and high networth individuals (HNIs).

Institutional investors, non-institutional investors, corporates etc. will be paid a lower rate of interest, which has been fixed at 10.75% per annum across all seven options, for all the tenures – 36 months, 48 months or 60 months.

It will be a month-long issue which is scheduled to close on December 24th i.e. Tuesday. As the issue size is small, the company has the option to preclose it as and when it gets oversubscribed. If it gets a poor response, the company may extend it also.

Retail investors category investing up to Rs. 5 lakh would get 40% pie of the issue. Individual investors investing more than Rs. 5 lakh in a single name would be categorised as HNIs and 40% of the issue size has been reserved for this category of investors also.

Categories of Investors & Allocation Ratio – The investors have been classified in the following four categories and each category will have a certain percentage fixed in the allotment:

Category I – Institutional Investors – 10% of the issue is reserved

Category II – Non-Institutional Investors & Corporates – 10% of the issue is reserved

Category III – High Networth Individuals including HUFs – 40% of the issue is reserved

Category IV – Resident Indian Individuals including HUFs – 40% of the issue is reserved

NCDs will be allotted on a first come first served basis.

NRI Not Allowed – Non-Resident Indians (NRIs), foreign nationals and qualified foreign investors (QFIs) among others are not eligible to invest in this issue.

Ratings & Nature of NCDs – The issue has been rated as ‘AA’ by CARE and all these NCDs are ‘Secured’ in nature. It indicates reasonable safety for your investment amount.

Listing, Demat & TDS – SCUF has proposed to list its NCDs on the Bombay Stock Exchange (BSE) as well as on the National Stock Exchange (NSE). Investors have the option to apply these NCDs in physical form as well as demat form. However, trading of these NCDs will happen only in the demat form.

Interest earned on these NCDs is taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000 in a financial year. NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – Minimum investment in this issue has been fixed as Rs. 10,000 i.e. 10 bonds of face value Rs. 1,000.

Performance of Last Year’s SCUF NCDs

As you can check from the table above, SCUF NCDs issued last year, with maturity periods of 36 months and 60 months, are trading at yields of 11.58% to 13.73%, much above the coupon rates offered in the current issue.

Also, with a private company being the issuer, it is always advisable to go for the least possible tenure offering attractive coupon/yield. As compared to the current issue, last year’s NCDs carry lower risk as the maturity period has become shortened.

Interest rates have also risen since its last issue. So, I would say if anybody wants to make an investment in SCUF NCDs, it is better to go for already listed NCDs rather than subscribing for them in the current issue.

Looking at the subscription figures of recent NCD issues of IIFL, Shriram Transport Finance, Muthoot Finance etc., it seems to me that the investors are not performing any due diligence before subscribing to these NCDs, rather these NCDs are getting sold to them by their brokers. Personally, I would avoid this issue for my own investments.

Application Form of Shriram City Union Finance NCDs

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 SCUF NCDs, you can contact me at +919811797407

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]

Muthoot Finance has again come out with a public issue of its secured and unsecured non-convertible debentures (NCDs) and it has been launched from today. This would be the second issue from Muthoot Finance this financial year after it raised Rs. 300 crore in September from its first issue.

The issue will remain open for two weeks to get closed on December 2nd i.e. first Monday of December. The company may extend the closing date of the issue or preclose it, depending on the response for the issue.

Most of the features of the current issue, including its coupon rates for the retail investors, are same as they were in the first issue. Let us first have a look at all of its features.

Size of the issue – The company plans to raise Rs. 300 crore from this issue as well, including the green shoe option of Rs. 150 crore.

Coupon Rates – Like Muthoot offered in its earlier issue as well, the company promises to double your investment amount in 6 years’ time i.e. 72 months with an effective yield of 12.25% per annum. But, NCDs issued under this option are ‘Unsecured’ in nature.

Apart from this option, it is offering coupon rates ranging from 11% to 12.25% with different maturity periods and different interest payment options as you can very well check from the table below.

Coupon Rates for Institutional Investors – This is one significant change Muthoot has made as compared to its first issue. Muthoot has decided to offer a lower rate of interest to the institutional investors and the difference is of 75 basis points (or 0.75%) across all the options, except option VII. The difference is of 0.25% only with option VII.

Categories of Investors & Allocation Ratio – The investors have been classified in the following three categories and as always, each category will have certain percentage fixed for the allotment:

Category I – Institutional Investors – 15% of the issue is reserved

Category II – Non-Institutional Investors & Corporates – 35% of the issue is reserved

Category III – Retail Individual Investors including HUFs – 50% of the issue is reserved

NCDs will be allotted on a first come first served basis in all these categories.

NRI Investment – Like its first issue, non-resident Indians (NRIs) are not allowed to invest in this issue as well.

Ratings & Nature of NCDs – There are two rating agencies involved in this issue – CRISIL and ICRA and both have assigned ‘AA-/Negative’ rating to this issue. All these NCDs are ‘Secured’ in nature, except NCDs issued under option XI which offer to double your money.

Listing, Demat & TDS – Muthoot has proposed to list its NCDs only on the Bombay Stock Exchange (BSE). Investors will again have the option to apply these NCDs in physical form as well as demat form under options I to VI. Applicants cannot apply for allotment of these NCDs in physical form under options VII to XI i.e. these NCDs will be allotted only in dematerialised form under options VII to XI.

Again, the interest earned will be taxable as per the tax slab of the investor and TDS will be applicable if the interest amount exceeds Rs. 5,000. But, NCDs taken in the demat form will not attract any TDS on the interest income.

Minimum Investment – Minimum investment in this issue as well has been fixed as Rs. 10,000 i.e. 10 bonds of face value Rs. 1,000.

Muthoot NCDs, issued in the first issue this year, have allotment date of September 25th i.e. they were issued around two months back. As you can check from the table above, most of these NCDs are still trading below their face value.

Also, liquidity is very poor with these NCDs, especially under unpopular options like cumulative interest & annual interest options and also with longer duration options of 60 months & more.

Interest rates have also risen since then. So, if I need to invest my money in Muthoot NCDs, I would go for already listed NCDs rather than buying them from the company in this issue.

Also, gold financing sector overall is not doing that great, but Muthoot is a key player in this sector. Investors need to factor in all these variables before applying for these NCDs.

Application Form of Muthoot NCDs

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 Muthoot NCDs, you can contact me at +919811797407

PP left the following comment on my investment cycle post:

PP November 8, 2013 at 5:43 pm [edit]

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]

Two power sector companies are inviting your applications for their tax-free bonds – PFC 8.92% bond issue is already open, the issue size is Rs. 3,875.90 crore and has received an extremely good response from the investors by getting subscribed to the tune of Rs. 2,639.30 crore in just two days time. NHPC is entering the field for a competitive fight from October 18th with a smaller issue size of Rs. 1,000 crore.

As far as the features of these two issues are concerned, the fight is so close that it has become extremely difficult for retail investors to make a decision. There are so many features which are absolutely same in both the issues and there are other features which are similar, but do not have much relevance to be considered. Just have a look at the features which are same and which are mildly different:

With interest rates exactly the same, both being PSUs and with features so similar, it becomes extremely difficult to make a choice based on just the features of these two issues. So, I thought of doing a fundamental comparative analysis between the two companies.

Profile of PFC & NHPC

PFC got incorporated in 1986 as a financial institution to finance, facilitate and promote India’s power sector development. It is a Central Public Sector Enterprise (CPSE) and got declared a Mini-Ratna enterprise in 1988 and entitled Navratna status in 2007.

PFC provides loans for various power-sector activities, including power generation, power distribution, power transmission and plant renovation and maintenance. PFC finances state electricity boards (SEBs), power generating companies of states and independent power producers (IPPs).

NHPC got established in 1975 to execute all aspects of hydroelectric power project development, from concept to commissioning. It was declared a Mini-Ratna Category-I CPSE in 2008 and has recently sought Navratna status from the government.

To be eligible for ‘Navratna’ status, a company needs to have a score of 60 out of 100, based on certain parameters which include net profit, net worth, total manpower cost, total cost of production, cost of services, Profit Before Depreciation, Interest and Taxes (PBDIT), capital employed etc.

As a Mini-Ratna Category-I entity, NHPC has been granted autonomy to undertake new projects. NHPC has developed and constructed 17 hydroelectric power stations and has current total generating capacity of 5,676.2 MW which is approximately 14.4% of the total hydel generating capacity in India.

It has power stations and hydroelectric projects located predominantly in the North and North East of India, in the states of Jammu & Kashmir, Himachal Pradesh, Uttrakhand, Arunachal Pradesh, Assam, Manipur, Sikkim. and West Bengal.

Credit Ratings of PFC & NHPC

International credit rating agencies Moody’s, Fitch and Standard & Poor’s (S&P) have granted PFC long-term foreign currency issuer ratings of “Baa3”, “BBB-” and “BBB-“, respectively, which are at par with the sovereign ratings for India.

NHPC has also been assigned “BBB-” rating by Fitch. S&P had also given “BBB-” rating to NHPC and removed it from ‘CreditWatch’ in September 2009, based on its assessment of NHPC’s “very strong” link with the government. S&P expressed its opinion that “there is a high likelihood that the government of India would provide extraordinary support for the company in the event of any financial distress”.

S&P also said that the ongoing support from the government is reflected in a tripartite agreement between NHPC, state electricity boards and the government, which largely mitigates the risk of any delay in payments from NHPC’s customers – the state electricity boards (SEBs) that have weak credit profiles.

Financials & other factors to consider

NHPC is a bigger company with a market cap of Rs. 22,203 crore based on its 15th October’s closing share price of Rs. 18.05. On the other hand, market cap of PFC is Rs. 17,306 crore with its share price being Rs. 131.10.

NHPC is also a less riskier company and it gets reflected in its PE ratio. The market is ready to pay NHPC a higher price for buying its shares based on its earnings, as compared to PFC. NHPC is trading at a P/E Ratio of 8.48 times as compared to PFC which is trading at 3.90 times.

PFC’s P/E Ratio of 3.90X is too low and it makes me feel that the market either believes PFC’s earnings to decline considerably at some point in future or some of the borrowers to default on their loan/interest payments.

Final Opinion

I am not a power sector expert. But, as a retail investor, I think NHPC is a better company to invest your money in the power sector. As a common consumer of electricity, this is what I understand – I buy electricity from a private power distribution company in Delhi, which in turn buys it from a power generation company like NHPC etc. Power generation business is a capital intensive business, for which companies like NHPC get capital infusion from the governments, loans from the power financiers like PFC, REC etc. and carry internal accruals by generating profits.

For NHPC, it is better to take money directly from us, the retail investors, rather than we giving money to PFC and then PFC lending it to NHPC at a higher rate. PFC’s fortunes hinge on the power producers like NHPC. If power producers are doing well, PFC would do better, but, if they are not doing good, PFC cannot do anything about it. This relationship is somewhat similar to real estate developers and project finance companies.

The fortunes of these power producers also depend on its cost of the factors of production, like labour, raw materials, technology, machinery etc. Most power plants here in India are coal-based, for whom it becomes a problem if coal supply gets interrupted or they have to import expensive coal due to its scarcity or falling value of rupee. For NHPC, the raw material cost is minimal.

My views might reflect very basic understanding because I don’t know how exactly things get carried out. I could have done some deep research on the functionalities & technicalities of the power sector companies, but then it would have become too complicated for me as well you to understand. So, personally & marginally, I prefer NHPC tax-free bonds over PFC tax-free bonds. Which one is your preference? Please share it share.