NHPC
Introduction: NHPC Limited, India’s premier hydro power utility and 86% subsidiary of Government of India, is entering the debt capital market on 18th 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.500 crore, with an option in company’s hand to retain an oversubscription upto Rs.500 crore, taking the total fund raising to Rs. 1,000 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 IRRPL, indicate highest degree of safety regarding timely servicing of financial obligations.
Listing: Bonds, proposed to be listed on BSE and NSE, 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.
Company Background: NHPC Limited, Category 1 Mini-Ratna and Indian utility for electricity generation through hydro power, reported net profit of Rs. 2,600 crore in FY13 on revenue of Rs. 6,400 crore. Its networth is Rs. 30,375 crore and company enjoys a market cap of Rs. 23,250 crore with total debt of Rs. 18,800 crore on its consolidated balance sheet.
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. |
|
| |
| 8.43% | 8.79% | 8.92% |
| 8.18% | 8.54% | 8.67% |
| Tax-effective Yield (%) p.a. (assuming 30.90% tax rate) |
|
| |
| 12.20% | 12.72% | 12.91% |
| 11.84% | 12.36% | 12.55% |
*Retail investors defined as application of a maximum of 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 fifth tax-free bond issue this fiscal after REC (closed), HUDCO (closes on 14th October), IIFCL (closes on 31st October), PFC (closes on 11th November) and the coupon rates only keep getting better! NHPC is offering 8.92% p.a. coupon for 20 year period, same as that being offered by PFC which opened for subscription today.
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.
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.