IRFCL - Tax Free Bonds

Indian Railway Finance Corporation Limited (IRFCL), the financing arm of Indian Railways and wholly owned by Government of India, is entering the debt capital market on 25^th February 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, closing on 13^th March, has a size of Rs.1,000 crore, with an option in company’s hand to retain an oversubscription upto the residual shelf limit of Rs.3,513 crore. Bonds, rated AAA by CRISIL, CARE and ICRA, indicating highest degree of safety regarding timely servicing of financial obligations, are proposed to be listed on NSE and BSE.

The current bonds are being offered under two series with features as under:-

Bonds are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Trading in the bonds will necessarily be in the demat form.

IRFCL’s 15 year (Series 2) bonds are comparable to 10.91% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. The company’s earlier bonds of 10 and 15 year tenure, issued in February 2012, are currently trading on NSE with yields of 7.45% and 7.46% pa for bonds with maturity after 9 and 14 years respectively. Thus, these listed bonds have higher yield than the Series 1 of Tranche 2.

The Tranche 1 bonds issued by IRFCL in January this year are trading at yields of 7.21%-7.22% pa on NSE currently, similar to PFC and REC Tranche 1 bonds.

Thus, the current bond issue is not attractive due to lower coupon rates being offered, in line with the easing interest rate regime.

.