December 29, 2011 by akhilendra
Power Finance Corporation (PFC) Tax free Bond Issue
Power Finance Corporation (PFC) Tax-free Bond Issue —Issue of tax-free secured redeemable non-convertible bonds in the nature of debentures
- Issue period: Friday, December 30, 2011 to Monday, January 16, 2012
- Basis of allotment: On a first-come-first-serve basis within each category
- Issue size: Rs1,000 crore with an option to retain an oversubscription up to the shelf limit of Rs4,033.13 crore)
Investment Opportunity:
Interest rates are at peak level; best time to invest in fixed income tax free instruments.
Interest rate cycle has peaked out
Given the sharp slowdown in the industrial activity and softening of the food inflation, the interest rate cycle has peaked out. Reserve Bank of India has restrained from increasing the interest rates in the last policy review meet and is expected to begin reducing rates in March or April 2012. The bond yields which have increased close to 9% levels have corrected significantly and show easing of pressure on rates.
High post tax yield for triple A rated product
Tax free bond with yield of 8.2-8.3% is comparable with yields offered on government bonds and offer extremely attractive pre-tax yield close to 12% for a long period of time. The bond issue has got AAA (stable) rating from the rating agencies — Crisil and CARE. The bonds would also be listed and tradable on NSE/BSE.
About Power Finance Corporation:
- Power Finance Corporation-A Navratna Government of India undertaking (GoI; 73.72% equity stake held by GoI)
- Set up in July 1986 as a specialised financial institution dedicated to power sector financing and committed to the integrated development of the power and associated sectors
- Classified as infrastructure finance company in July 2010 by the Reserve Bank of India and as a public financial institution u/s 4A of the Companies Act ,1956
| Options/Series | Tranche-1 Series I | Tranche-1 Series II |
| Face value per bond | Rs1,000 | Rs1,000 |
| Minimum application size | Rs10,000 (10 bonds) | Rs10,000 (10 bonds) |
| In Multiples Of | Rs5,000 (5 bonds) | Rs5,000 (5 bonds) |
| Frequency of interest payment | Payable annually | Payable annually |
| Interest rate pa (%) | 8.20% | 8.30% |
| Interest payment date | Every year on October 15 and on respective maturity | |
| Redemption/Maturity date | 10 years | 15 years |
| Redemption amount | Repayment of the face value plus any interest that may have accrued on the redemption date | Repayment of the face value plus any interest that may have accrued on the redemption date |
| Category | I | II(Above Rs5 lakh) | III (Below and including Rs5 lakh) |
| Portion | Institutional portion | HNI portion | Retail portion |
| Size in % | 50% of overall issue size on first-come-first-serve basis | 25% of overall issue size on first-come-first-serve basis | 25% of overall issue size on first-come-first-serve basis |
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