IIFCL - Tax Free Bonds
By Geetanjali Kedia
Introduction: India Infrastructure Finance Company Limited (IIFCL), providing long term financial assistance to infra projects and wholly owned by the Government of India, has entered the debt capital market for the third time this fiscal (after October and December 2013), on 17th February 2014, 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 14th March 2014, has a size of Rs.750 crore, with an option in company’s hand to retain an oversubscription upto the residual shelf limit of Rs.2,823.79 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: Same as its previous issues - AAA by ICRA, BWR, CARE and India Rating indicating highest degree of safety regarding timely servicing of financial obligations.
Listing: Bonds, proposed to be listed on NSE and 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. |
|
| |
| 8.41% | 8.80% | 8.80% |
| 8.16% | 8.55% | 8.55% |
| Tax-effective Yield (%) p.a. (assuming 30.90% tax rate) |
|
| |
| 12.17% | 12.74% | 12.74% |
| 11.81% | 12.37% | 12.37% |
*Retail investors defined as application upto Rs. 10 lakh from resident individuals, HUF, NRIs and QFIs being individual.
Rate of Return: IIFCL is offering 8.80% pa coupon for both 15 and 20 year periods. Although the current offering is 11 basis points lower than its December issue from the same company (8.91% offered for 20 years), it is comparable with IREDA’s AAA rated bond issue currently open.
However, in comparison to Ennore Port’s tax free bonds, IIFCL’s offering is 20 basis points lower. The former has coupon rates of 9% pa for both 15 and 20 years, although with lower rating of AA. However, both being PSUs, 20 basis points is a material difference, making Ennore issue more preferred.
Recommendation: Due to lower coupon, IIFCL scores lower than Ennore. Go for the latter.