PFC

By Research Desk
about 6 years ago
PFC

Introduction: Power Finance Corporation is entering the debt capital market on 14th October 2013, with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures.

Issue Details: Issue, closing on 11th November, has a size of Rs.750 crore, with an option in company’s hand to retain an oversubscription upto Rs.3,875.90 crore. Minimum application is Rs. 5,000 and in multiples of Rs. 1,000 thereafter, while allotment will be done on first come first serve basis. Being tax-free, the interest does not attract TDS nor do the bonds attract wealth tax. Also, the bonds do not have any lock-in period.

Rating: Bonds, rated AAA by CARE, ICRA and CRISIL, indicate highest degree of safety regarding timely servicing of financial obligations.

 

Listing: Bonds, proposed to be listed on BSE, are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Trading lot is one bond and must be necessarily in done demat form only.

 

What’s on offer: Bonds have three different series under which they are being offered:

 

Particulars

Series 1

Series 2

Series 3

Tenor

10 Years

15 Years

20 Years

Interest Payment

Annual

Annual

Annual

Coupon Rate (%) p.a.

 

 

 

  • For retail investors*

8.43%

8.79%

8.92%

  • Other than retail investors

8.18%

8.54%

8.67%

Tax-effective Yield (%) p.a. (assuming 30.90% tax rate)

 

 

 

  • For retail investors*

12.20%

12.72%

12.91%

  • Other than retail investors

11.84%

12.36%

12.55%

*Retail investors defined as application upto Rs. 10 lakh from resident individuals, HUF, NRIs and QFIs being individual. 40% of the issue is reserved for retail investors. 

 

Rate of Return: This is the fourth tax-free bond issue this fiscal after REC (closed), HUDCO (to close on 14th October), IIFCL (scheduled to close on 31st October). PFC is offering 8.92% coupon for 20 year period, which is 17 basis points higher than IIFCL’s 8.75%, with comparable credit rating of AAA for both. Thus, it’s a very attractive coupon and one must go for it.

 

The 20 year (Series 3) bonds, carrying the highest coupon rate, are comparable to a 12.91% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. This is very attractive rate as currently no bank is offering double digit interest rates on long term deposits.

 

Previously issued (in early 2013) 10 year and 15 year PFC bonds (maturing in 2023 and 2028 respectively) are trading on BSE with yields of 7.50% and 7.75%. Thus, current rates of Series 1 and Series 2 bonds are significantly higher, even for non-retail investors.

 

Recommendation: Considering the tax free income to be earned from the bonds, AAA rating, 20 year tenor with attractive coupon rate, those looking for fixed asset allocation must subscribe to the series 3 bonds with tenure of 20 years.

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