NTPC

Introduction: NTPC Ltd. is entering the debt capital market on 3^rd December 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 16^th December 2013, has a size of Rs.1,000 crore, with an option in company’s hand to retain an oversubscription of Rs. 750 crore, taking the total fund raising to Rs. 1,750 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 CRISIL and ICRA, indicating highest degree of safety regarding timely servicing of financial obligations, are proposed to be listed on BSE.

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.

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

*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, 25% for HNIs, 25% for corporates and balance 10% for QIB. 

Company Background: A Maharatna, NTPC is engaged in generation and sale of bulk power to state power utilities. It has total installed capacity of 41,794 MW (including JVs) with 16 coal based and 7 gas based stations located across the country. With 16% of the country’s total installed capacity in its fold, NTPC contributes to 26% of the power generation. In FY13, it posted topline of Rs. 67,953 crore and PAT of Rs. 12,591 crore, on networth of Rs. 85,407 crore. For H1FY14, it reported revenue of Rs. 32,077 crore and PAT of Rs. 5,020 crore. Although it has total debt of Rs. 55,770 crore, its net debt to equity ratio is a comfortable 0.4:1.

Rate of Return: NTPC joins the list of PSUs issuing tax free bonds this fiscal, with PFC, REC, HUDCO, NHPC and IIFCL.

The highest coupon rate, in the 20 year (Series 3) bonds, are comparable to a 12.89% 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.

However, NTPCs offering can be directly compared with HUDCO tax free bonds, which opened for subscription on Monday 2^nd December, just a day before. Since NTPC enjoys better credit rating than HUDCO, its coupon rates are lower than the latter’s offering. However, both being PSUs where timely interest and principal repayment is not a concern, the coupon rate must be the sole deciding factor, where HUDCO scores over NTPC by a good 10 basis point (9.01% pa coupon for Series 3).

Recommendation: Current HUDCO bonds more attractive than NTPC’s offering. Hence pass NTPC for HUDCO.