Ennore Coke
By Geetanjali Kedia
Introduction: Central Government owned Ennore Port, the only port among 12 major ports in India to have a corporate structure, has entered the debt capital market on 18th February 2014, with a public issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures.
Issue Details: Closing on 14th March, issue has a size of Rs.250 crore, with an option in company’s hand to retain an oversubscription upto Rs.250 crore, aggregating Rs. 500 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: AA by CARE and ICRA indicating high degree of safety regarding timely servicing of financial obligations.
Listing: Proposed to be listed on BSE. 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: The current bonds are being offered under two different series with features as under:-
| Particulars | Series 1 | Series 2 | Series 3 |
| Tenor | 10 Years | 15 Years | 20 Years |
| Frequency of Interest Payment | Annual | Annual | Annual |
| Coupon Rate (%) p.a. |
|
| |
| 8.81% p.a. | 9.00% p.a. | 9.00% p.a. |
| 8.36% p.a. | 8.75% p.a. | 8.75% p.a. |
| Tax-effective Yield (%) p.a. (assuming 30.90% tax rate) |
|
| |
| 12.75% | 13.02% | 13.02% |
| 12.10% | 12.66% | 12.66% |
| Put / call Option | None | None | None |
*Individuals and HUFs can apply for a maximum of Rs. 10 lakh in this category
Rate of Return:
Both 15 year and 20 year (Series 2 and 3) bonds carry equal coupon rates of 9% per annum. This is comparable to a 13.02% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. This is an attractive rate vis-à-vis bank FDs as no bank is offering double digit interest rates on long term deposits now.
On comparing with other tax free bonds currently open for subscription – IIFCL and IREDA – both of which are offering 8.80% for 15 and 20 years i.e. a substantial 20 basis points lower. Although these two are AAA rated, one notch above Ennore Port’s AA rating, being a government entity is a sufficient cover having networth of Rs. 788 crore and debt of less than Rs. 400 crore. Also, company has an cash profit run-rate of Rs. 300 crore, which is another positive.
Last March, company had launched a Rs. 1,000 crore bond issue, of which, it garnered subscription of only Rs. 95 crore, due to bundling of several tax free bond issues (5 issues launched simultaneously in March 2013), coupled with lower coupon rate on offer. However, this time the company looks better placed, albeit a 50% reduction in issue size.
Recommendation: In the backdrop of likely fall in interest rates and the very attractive 9% pa coupon rate for 15 and 20 years, one must apply in Ennore Port’s tax free bonds, specially investors falling in the highest tax bracket. The credit rating is not a road-block.