Investments

Tax-Free Bond Issues to be launched during November/December 2013

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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.

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139 thoughts on “Tax-Free Bond Issues to be launched during November/December 2013”

  2. If the interests rates on second tranche is attractive, is it advisable to sell the holding of first tranche and buy them on second trance? Pls advice.

    Reply

    1. Hi Nagendra,

      It depends on the coupon rate of the issue you subscribed for, coupon rate of the new issue, market rate of the bond you subscribed for and your personal investment requirement whether you should do that or not.

      Reply

  3. Thanks Shiv, I had subscribed to the previous issue of HUDCO, IIFCL and REC 15 yrs and 20 yrs bonds. I had some additional cash that I wanted to save in fixed income deposits for a regular income. The coupon rate of the new issue is key, close to 9% or more would make me think. Can’t wait to know the Coupon Rates?. REC offered lower rates than HUDCO and IIFCL, but I kept investing equal amont in each of them. Would an increase rate of 0.5 % in new issue worth selling previous holding?

    Reply

  4. Hi Shiv,

    Bought 999 units of IIFCL & HUDCO. Believe this entailed me as a retail investor. If the second tranche rates are higher, I am planning to invest more in these issues. Will I still be considered as a retail investor, as the total will exceed 10 lakhs when investments in both the tranches of the same issuer are combined ? Please advise.

    Reply

    1. Hi Kalyan,

      Rs. 10 lakh limit is for each issue and not for all the issues combined. Even if you had invested Rs. 20 lakh in IIFCL and HUDCO issues (Rs. 10 lakh * 2 issues), then also you would have been considered as a retail investor. With Rs. 10 lakh getting invested in each issue, you can invest Rs. 1 crore in 10 different issues and still get higher rate of interest as a retail investor.

      Reply

      1. Thank you, Shiv. Guess my question was not very clear. Please let me try again. I invested 10 lakhs in earlier tranche of IIFCL. If I invest another 10 lakhs in the upcoming tranche of IIFCL, totaling an investment of 20 lakhs in IIFCL issue, will I still be considered a retail investor.
        Greatly appreciate your guidance..

        Reply

        1. Yes Kalyan, even if you invest Rs. 20 lakhs with IIFCL in two different tranches of IIFCL, then also you will be considered as a retail investor and get a higher rate of interest in both the issues.

          Reply

  5. Very informative and useful post Shiv. Your posts are always to the point and educate us a lot 🙂

    I had 3 questions :
    1. Does it make sense to wait for the 2nd half of december for issues like NHB and NHAI, because maybe the coupon rates will be higher to attract investors after the offers in the first half ?

    2. Where do you see the G-Sec rates heading at the time of these issues hitting the market?

    3. Is the RBI bond auctions this week delaying the tax-free bond issues ?

    Reply

    1. Thanks Aditya for you kind words !!

      1. Nobody knows what the coupon rates will be in the 2nd half of December, so I don’t know when one should invest in these bonds to get higher rate of interest. With PFC & NHPC bonds, I thought that their rate of interest would be the highest this financial year, but then I was wrong in my assessment. Let the issues starts pouring in, only then one can take calculated calls.

      2. Similar response as ‘1’ above.

      3. I don’t know, but I don’t think that the RBI bond auctions this week have anything to do with the tax-free bond issues getting launched or getting delayed.

      Reply

  7. Hi Shiv

    I just heard from one of my sources that NTPC tax free bonds is opening on Dec-3 and will close on Dec-16. Looks like retail is only getting 8.91% for 20 years as max interest.

    Regards
    Ramadas

    Reply

    1. Hi Ramadas,

      Even I’ve heard the same. HUDCO has also pushed it to the first week of December.

      Also, I think coupon rate of HUDCO bonds should cross 9% mark as it is AA+ rated. 10-year coupon rates will still be higher than the previous issues as the average 10-year G-Sec yield has jumped substantially. Let’s see.

      Reply

        1. There is enough safety with all these tax-free bonds as all these are issued by PSUs. With ‘AA+’ or ‘AAA’ ratings, you can’t really measure the degree of safety. Personally, I think there is only a marginal difference between HUDCO’s ‘AA+’ issue and other PSUs’ ‘AAA’ issues, but then if two issues are offering similar rates, everybody would prefer the ‘AAA’ one with good financial standing.

          Reply

          1. Hi Shiv,

            Now that the coupon rates are out, in your opinion how much of a factor will AA+ against AAA be ?
            I am looking to hold the bonds till maturity.

  8. I read State bank is planning to issue bonds. I couldn’t find more details about this. Will this be available for retail invenstor? Do you have more information about term / interest rate / taxable or non taxable etc? Please let me know. Thanks,

    Reply

    1. For retail , 10 year bonds are at 8.66% , 15 year bond at 8.73% and 20 year bond at 8.91% is what i heard. Not much different than what NHPC and PFC offered.

      Reply

  10. This year I have already invested in REC and PFC tax free bonds. should iI wait for IRFC or NHAI tax free bonds or invest in NTPC?

    Reply

    1. Hi RS,

      IRFC bonds issue is expected to get launched quite soon. You can wait for the issue to get launched, compare the interest rates with that of NTPC and then take a decision. NHAI is yet to file its draft shelf prospectus, so it will take a while for the company to announce its rates.

      Reply

  11. Got this from a reliable source

    Tax free bonds update
    HUDCO2 opening on 2 Dec.
    Rates:
    10 yr 8.76%
    15 yr 8.83%
    20 yr 9.01%

    NTPC opening on 3 Dec.
    10 yr 8.66%
    15 yr 8.73%
    20 yr 8.91%

    Reply

    2. Yeah seems right, HUDCO opening on 2nd December with rates 10 yr 8.76%, 15 yr 8.83%, 20 yr 9.01% and Interest payments on 31st December every year.

      Reply

  12. Now the question is should you go for HUDCO or NTPC . HUDCO has better rate but lower ratings and will be listed on BSE only. I’m sure Shiv would be able to shed more light on this once complete details emerge.

    Reply

  13. Hi Shiv,

    Is it advisable to sell last years bonds of PFC and IRFC which offered 7.38% to retail investor and invest that amount in coming issues. I understand that the market rate of these bonds are trading much lower to their face value, for PFC it is 957 while IRFC it is 925 as on today.

    Regards,
    Ashish A

    Reply

    1. Hi,

      I was looking for write up from Shiv on the NTPC issue. My feeling is that this is the best Tax free bond considering the background of the company. The capitalization of equity , revenue and Profit of this company is good. When compared to NHPC also NTPC seems to be a better bet. Regarding Ashish’s question on selling the old bond and buying the new. One will have to really do some calculations. Selling Bond with FV of 1000 for 925 and buying new bond will not be sensible if you calculate the difference between the new coupon rate and discounted coupon rate of the old bond. The old bond price already factored the difference. You will be paying brokerage on top of it and this will show a loss rather than any kind of gain. For long term investors it is better to hold the old ones and buy the new one if there is fund. The average return of the portfolio will improve.

      Reply

  14. Dear Shiv,

    I have a doubt on application. I have 2 Demat accounts where in 1 I am first owner and my wife is second and in 2nd one she is the first owner. While applying, can we apply in both demat account with a limit of 10 each as retail customer?

    Reply

    1. Yes George, you can apply Rs. 10 lakh worth of bonds with each of the demat accounts. You’ll be the first applicant in the first application and your wife will be first applicant in the second application.

      Reply

  16. Hi Shiv,

    RBI has decided to launch Inflation Indexed National Savings Securities-Cumulative (IINSS-C) for retail investors in the second half of December 2013. It would be great if we can have your input on this.

    Thanks

    Reply

  17. Hi Shiv,

    Can one sell the bond in secondary market physical form with same amount of ease/liquidity as DEMAT form?

    Thanks

    Reply

    1. Hi Abhinav,

      It is as difficult to sell these bonds in physical form as it is easy to sell them in demat form. You’ll not be able to find an interested buyer for these bonds in physical form very easily and the transfer process is also very difficult.

      Reply

    2. Great, So similar rates as the current issues. Probably these are the highest rates we will see for sometime as I don’t expect the coming issues to have better rates than this.

      Reply

    1. If you’ve bought these bonds on or after November 13th, you’ll not get any interest, as these bonds already got “Ex-Interest” after that.

      Yes, you need not pay any STCG tax if you sell these bonds @ Rs. 900, bought @ Rs. 930.

      Thanks for the appreciation !! 🙂

      Reply

  20. Dear Shiv

    I have a doubt, we recently invested 2 lakh each in HUDCO & IIFC for 20yrs, Now i can invest only 6 lakhs more in coming IRFC bond issue or I can invest even 10 lakh. IS THIS 10 Lakh limit for each bond or sum of all bonds invested in a year. Will appreciate your reply as i am clueless on this.

    Reply

      1. To add to that, you can invest up to 10lakhs in each tranche, when there are multiple tranches of the same company/Org and still be considered a retail investor. This point was also clarified by Shiv earlier.

        Reply

          1. Dear Shiv & Kalyan

            Thank you very much for clearing away the doubts. There is just one more doubt and i don’t know if it can be asked in this thread. I am NRI and wife is in India as Resident Indian. I want to further invest more in tax free bonds through my wife. So, if i transfer money from my NRE account to her resident account and she is doing tax free bond, is there any issue in it…TAX wise??? Or is it fine??

  21. Will investing more than Rs 10 Lakhs in different tranches in a fiscal year invite Income Tax Dept for srutiny and explanation?

    Reply

    1. Not necessarily Anand !! Investment of Rs. 5 lakhs and above automatically gets reported to the I-T department, but it is not necessary that all investors face scrutiny. It is done on a random basis I think.

      Reply

    1. Hi Shiv,

      With the G-Sec yields cooling off a little bit after the RBI decision, do you think that IRFC might also push its issue to January ? I say this because they may not be able to attract investors with the lesser coupon rates right now.

      Reply

      1. Shiv – Do you expect the coupon rates to be similar now to the IIFCL issue ? When did NHB file its prospectus ?

        Reply

        1. It is very difficult to guess the coupon rates for the NHB issue Aditya. Let’s wait for the issue details to get announced. NHB filed its draft shelf prospectus on December 13th.

          Reply

        1. Thanks for clarification. In the prospectus it mentions 2 different dates – on page 17 it says 20 February whereas somewhere down it says 20 January – confusing 🙂

          Reply

          1. Yes, that’s right. It is February 20th at one place, rest everywhere it is January 20th. Even the illustrative example has the Deemed Date of Allotment as January 30th, so I think it is January 20th.

          2. Issue size being 8663 crore and with these lower interest rates , dont you think it is ambitious of IRFC to close the issue in 14 days !!!!

  30. Inflation indexed bonds illustration: Coupons of 11.97% and 12.83% during last two years.

    (1) date
    (2)fixed coupon
    (3) reference cpi (i.e. of month 3 months earlier of date in column 1)
    (4) %age increase in referenced cpi over last six months
    (5) coupon = column 2+column 4
    (6) cummulative value
    (7) annual return during tenancy

    (1) (2) (3) (4) (5) (6) (7)
    01.02.2012 113.6 1000
    01.08.2012 0.75 118.2 4.049 4.799 1048
    01.02.2013 0.75 125.4 6.091 6.841 1120 11.97
    01.08.2013 0.75 129.2 3.030 3.780 1162
    01.02.2014 0.75 139.5 7.972 8.722 1263 12.83

    Reply

  31. Hi Shiv,

    A little query about the history of the TFBs. How old is the TFB market in India ? and are there instances where people have bought TFBs say 10-15 years ago are holding them and receiving interest payments and maturity amounts as scheduled ?

    Reply

    1. Hi Aditya,

      Some 10-12 years back, RBI used to issue these bonds on behalf of the government of India. Those bonds used to carry 8% tax-free returns initially and then 6.5% tax-free & 8% taxable interest. After a few years, the government decided to stop issuing those bonds. I think all these bonds must have got matured by now.

      Now, since FY 2011-12, the government has again decided to allow certain big PSUs to issue tax-free bonds, starting with NHAI & PFC in December 2011, IRFC & HUDCO in January 2012 and REC in March 2012. Last FY also, such companies raised some Rs. 20,000-25,000 crore and this year also, the process is on.

      Nothing negative to be shared about, but then tax-free bonds issued by these PSUs are riskier than the bonds issued by the government itself.

      Reply

  32. Hi,
    Any news (confirmed or unconfirmed) on coupon rates of NHB tax free bonds. It is slated for launch on Dec 30th.

    Reply

  33. NHB Tax-Free Bonds issue opens on December 30th. Coupon Rates – 8.51% for 10 years, 8.88% for 15 years and 9.01% for 20 years. It is a ‘AAA’ rated issue and closes on January 31, 2014. I am pleasantly surprised with the coupon rates.

    Reply

  35. Shiv, Appreciate all ur posts on TFBs, have been reading all those and taking investment decisions accordingly. Wanted to say these posts really helps us a lot, ur doing a great job. Thanks so much and Happy New Year in advance!!

    Reply

  36. Dear Shiv,
    Any info on Tax Free Bonds by IREDA, AAI and others?
    Could there be a possibility that they have raised the amount through private placement?

    Reply

    1. Hi Nagendra,

      No, I don’t have any info about any other tax-free bond issue as yet, except that NHAI has filed its Draft Shelf Prospectus on 27th Dec. It is not possible for any company to raise the whole amount through private placements. 70% of the money has to be raised through public issue(s).

      Reply

      1. Thanks Siva for your prompt response.
        I also feel the same however trying to find if the interest rate will be more then 8.65 ( IRFC) accordingly decide weather to wait for NHAI or not.
        Where we can see the subscription detail for IRFC?

        Thanks
        Deepak

        Reply

        1. I am not sure whether the interest rates would be lower or higher than IRFC issue, but I think there is no harm in waiting for the rates to get announced. IRFC issue is not going to get closed before January 20th for sure and I think NHAI rates will get announced before that.

          Here is the link to check the subscription numbers for the IRFC issue – http://www.bseindia.com/markets/publicIssues/DisplayIPO.aspx?id=753&type=DPI&idtype=1&status=L&IPONo=812&startdt=1/6/2014

          Reply

  38. NHAI Tax-Free Bonds issue opens January 15th. Coupon Rates – 8.52% for 10 years and 8.75% for 15 years. 20-year option is not there. It is rated ‘AAA’ and closes on February 5, 2014.

    Reply

  40. Shiv, Thanks for your informative posts. Can you list the tax free bonds that will be launched in this financial year between Jan till march 2014 please?

    Reply

  41. Question on AIR for investment in bonds during a financial year: If someone invests 2 lacs in NHAI capital gain bonds and 3 lacs in NHAI tax free bonds during a financial year, will this lead to reporting in AIR by NHAI (over 5 lac investment in bonds)?

    Reply

  42. Shiv, 1 request.. In the article you were planning to write about interest payout dates for all TFBs issued this FY, can you also mention the deemed allotment dates of each, so that we know the maturity date.

    Reply

      1. Hi Shiv

        Any idea on IREDA tax free bonds start date and possible coupon rates? Going by previous TFB filing dates , IREDA should launch TFB next week , right?

        Regards
        Ramadas

        Reply

  45. A very informative post , these posts helps us a lot, in investing in TFB
    can u list the TFB which are likely to be launched in Feb and March this year

    Reply

    1. Thanks Parvathi!
      Only IREDA has filed the draft shelf prospectus for its tax free bond issue this month. IIFCL will launch its third tranche and Airport Authority, Cochin Ship Yard and Ennore Port are also expected to come out with their issues in Feb or March this year.

      Reply

  46. Hi Shiv

    Regarding AIR reporting, what I Now understand is to avoid buying above 5 Lacs from one company.

    could you give us some more guidelines to prevent AIR reporting.

    Reply

    1. Hi Mr. Ramesh,
      I don’t understand why people always remain scared of AIR reporting. If you are doing everything in a legal manner, then how does it matter if it is getting reported or not. I am sorry, but I won’t like to cover the guidelines to prevent AIR reporting.

      Reply

  47. I am also keenly waiting for your article on interest payment and allotment dates for all TFBs issued during last few years.

    thanks.

    Reply

  50. It would be great if NHB, NTPC issue extra tax free bonds within this year. Hopefully, like always, I’ll get to know about the same through your post Shiv.

    Reply

  51. Hi Shiv,

    I have a question on diversification as for an investor in tax free bonds. If somebody has invested in power sector bonds such as NHPC, PFC and NTPC, are your thoughts about investing in the upcoming IREDA (which is also in energy & power sector)? If power sector ever comes under risk would not all the above companies face the heat with consequences for the bond holders?

    Regards,
    SB

    Reply

    1. Hi SB,

      It is always better to diversify as much as you can. So, if one has already invested too much in a sector, then it is better not to stretch it. But, then it is difficult to anticipate an individual sector’s fortunes. Power Sector was doing extremely good under Mr. Suresh Prabhu, but the UPA government has spoiled it completely. I’ll review the IREDA issue once its details are out.

      Reply

  52. Hi Shiv,
    My thought was as these bonds are issued by PSU’s which are backed by Govt of India so it makes that practically zero default – isnt’nt it?

    so does one really need to worry about diversification sector specific?

    Thanks,
    RS

    Reply

    1. Hi Rashmi,

      I think it depends on person to person, company to company and sector to sector. Though I think one’s investment in these PSUs is quite safe, diversification is always advisable. I think zero default should be considered only with the government or RBI bonds.

      Reply

  53. Hi Shiv

    Looks like Ennore port has filed DRHP and no signs of IREDA issue yet. Is it worth to wait for these issues or go for IRFC ? IRFC doesnt have a 20 year option whereas IREDA will have one which is interesting for me. Hopefully IREDA come up with better interest rates than IRFC.

    Regards
    Ramadas

    Reply

    1. Hi Ramadas,
      Even I hope that IREDA carries a higher rate of interest. I think one can wait for the IREDA issue to open as there is some possibility that IRFC issue gets extended.

      Reply

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