PFC
Power Finance Corporation (PFC) has entered the debt capital market for the second time this fiscal, on 18th 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 15th March, has a size of Rs.100 crore, with an option in company’s hand to retain an oversubscription upto the shelf limit of Rs.3,890.25 crore. This is the second tranche, the first worth about Rs. 700 crore been completed in December 2012. 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 BSE.
The current bonds are being offered under two series:
| Particulars | Series 1 | Series 2 |
| Tenor | 10 Years | 15 Years |
| Frequency of Interest Payment | Annual | Annual |
| Minimum Application Size | Rs.5,000 (5 Bonds) | Rs.5,000 (5 Bonds) |
| In Multilpes of | Rs.1,000 (1 Bond) | Rs.1,000 (1 Bond) |
| Face Value (Rs/Bond) | Rs.1,000 | Rs.1,000 |
| Issue Price (Rs/Bond) | Rs.1,000 | Rs.1,000 |
| Coupon Rate (%) p.a. | ||
| 7.38% p.a. | 7.54% p.a. |
| 6.88% p.a. | 7.04% p.a. |
| Put / call Option | None | None |
Bonds are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds.
Like previous issues, these bonds also have a step down feature, wherein a retail investor will get a lower interest rate if he purchases the bonds from the secondary market (post-listing) i.e. he will earn interest of 6.88% p.a. and 7.04% p.a. on Series 1 and Series 2 bonds respectively, losing the 0.50% premium on interest.
PFC’s 15 year (Series 2) bonds are comparable to a 10.91% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. Although this is greater than single-digit FD rates currently being offered by banks, it is about 30 basis points lower than PFC’s offering during Tranche 1 just 2 months back in December 2012. The company was then offering 7.86% to retail investors for 15 years, which is now fallen by 0.32% to 7.54%. Likewise, 10 year bonds coupon rate has contracted to 7.38%, lower by 31 basis points.
Even if we compare the yields of the Tranche 1 bonds currently listed, the 10 year and 15 year bonds are quoting at yields of 7.20% and 7.37% respectively, as against coupon rates of 7.19% and 7.36% respectively (for non-retail investors). Thus, the yields of Tranche 1 are in line with their coupon rates, making the current lower rates of Tranche 2 unattractive.
Only the step-down benefit is the sweetener in the current primary offering vis-à-vis the listed bonds for retail investors.
Thus, the current bond issue is not attractive due to lower coupon rates being offered, in line with the easing interest rate regime.
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