The Industrial Finance Corporation of India was established as a statutory corporation (on July 01, 1948) to meet the long-term finance requirements of the industrial sector. Earlier, IFCI provided loans and advances to corporate borrowers through central bank’s Statutory Liquidity ratio (SLR), which in turn enabled them to loans and advance at concessional rates. But by early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its fund needs. Therefore the constitution of the company was changed in 1993 from a statutory company to a company under the Indian Companies Act, 1956 and subsequently the name of the company was changed to “IFCI Limited” with effect from October 1999. This allowed it to procure funds directly from the capital markets.

IFCI Limited is currently offering secured redeemable non-convertible debentures of face value of Rs 1,000 each for an amount of Rs 250 crore with an option to retain over subscription up to the residual shelf Limit of Rs 790.81 crore). At least 75% of the amount raised and allotted in the Tranche II issue will be utilised for the purposes of lending or repayment of loans. Maximum 25% will be used for general corporate purposes.
 

Highlight of the Issue

Issuer	IFCI Limited
Offering	Base issue size of Rs 250 Crore, with an option to retain oversubscription up to the residual shelf limit(i.e. Rs 790.81 Crore)
Instrument	Secured, redeemable and non-convertible debentures
Rating	“BWR AA- (Outlook: Stable)” by Brickwork Ratings India Private Limited & “[ICRA]A (Stable)” by ICRA Limited
Security	Pari passu floating first charge on Receivables of the Company (other than the Lien Receivables) with an asset cover of one time of the total outstanding amount of NCDs and interest thereon at any point of time. The Company reserves the right to create first pari passu charge on the present and future Receivables for its present and future financial requirements or otherwise, provided that a minimum security cover of 1 (one) time is maintained
Face Value	Rs 1,000 per NCD
Issue Price	At par (Rs 1,000 per NCD)
Minimum Subscription	10 NCDs and in multiples of 1 NCD thereafter
Options	Series I: 60 months, Annual Series II: 60 months, Cumulative Series III: 120 months, Annual Series IV: 120 months, Cumulative
Coupon Rate (For NCD Holders who are individuals)	Series I: 9.45% p.a. Series II: N.A. (Since Cumulative) Series III: 9.50% p.a. Series IV: N.A. (Since Cumulative)
Trustee	Axis Trustee Services Limited
Listing	BSE and NSE. BSE being the Designated Stock Exchange.
Depository	Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL)
Registrars	Karvy Computershare Private Limited
Mode of Allotment	In dematerialised form and physical form, at the option of the Applicant. The trading in NCDs shall be compulsorily in dematerialised form.
Issue Open Date	January 1, 2015
Issue Close Date	February 4, 2015
Deemed Date of Allotment	The date on which, the Board of Directors or Board Committee, approves the Allotment of NCDs for the Tranche II Issue or such date as may be determined by the Board of Directors or Board Committee and notified to the Designated Stock Exchange. All benefits relating to the NCDs including interest on NCDs (as specified in this Prospectus Tranche II) shall be available from the Deemed Date of Allotment. The actual allotment of NCDs may take place on a date other than the Deemed Date of Allotment
Eligible Investors
Category III High Net-worth Individuals, ("HNIs") Up to 25% of Overall Issue Size*	The following investors applying for an amount aggregating to more than Rs 2 lakh across all Series of NCDs in a Tranche Issue: Resident Individual Investors Hindu Undivided Families applying through the Karta
Category IV (Retail Individual Investors) Up to 25% of Overall Issue Size*	The following investors applying for an amount aggregating up to and including Rs 2 lakh across all Series of NCDs in a Tranche Issue: Resident Indian individuals; and Hindu undivided families through the karta

(Source: Tranche II Prospectus & PersonalFN Research)
Note: PAN card is mandatory for subscribing to these bonds. A self-attested copy shall be enclosed along with the application form.
(*On first come first serve basis to be determined on the basis of the bid uploads made with the scheduled Stock Exchanges)   Individual investors will have the following options available at the time of subscribing to the issue:
.

Series	I			II			III			IV
Tenor	60 months			60 months			120 months			120 months
Interest Payment	Annual			N.A. (Since Cumulative)			Annual			Monthly
Aggregate Coupon	9.45% per annum			-			9.50% per annum			-
Face Value	Rs 1,000 per NCD			Rs 1,000 per NCD			Rs 1,000 per NCD			Rs 1,000 per NCD
Amount on Maturity	-			Rs 1,571.04			-			Rs 2,480.08
Tax slabs (%)	10.3	20.6	30.9	10.3	20.6	30.9	10.3	20.6	30.9	10.3	20.6	30.9
Effective Yield - Pre Tax (%)	9.45	9.45	9.45	9.45	9.45	9.45	9.50	9.50	9.50	9.50	9.50	9.50
Post Tax Returns (%)	8.48	7.50	6.53	8.62	7.76	6.87	8.52	7.54	6.56	8.81	8.07	7.29

(Source: Tranche I Prospectus & PersonalFN Research)  

Well, after reading the details of the NCD (as provided above), there may be still some more questions popping up, which are answered hereunder:
 

• Will I get any tax benefit if I invest in these bonds?
  
  No, these bonds do not entitle you to any tax benefit nor are these any “infrastructure bonds”, which make you eligible for an additional tax deduction under section 80 CCF.
   
• Is interest on these NCDs Tax Free?
  
  No, the interest on these NCDs is not tax free – it is chargeable to tax. The interest income will be taxed under “income from other sources”, and will be brought to tax at the respective income tax rates you fall under. However no tax will be deducted at source as these NCDs are issued in demat form and are listed on the exchange.
   
• What is the Tax Treatment on Capital Gains for these NCDs?
  
  If you happen to sell these NCDs before 365 days, you will have to pay short term capital gain tax (as applicable to you as per your tax slab) arising on the profit. Provisions of long term capital gain tax will be applicable for any sale of securities after 365 days. Any long term capital gain on these securities will be taxable @ 10% without indexation benefits or 20% with indexation benefits.
   
• Can a minor apply to these bonds?
  
  Yes, a minor can apply for these bonds, but only through a guardian.
   
• Can one apply in joint names?
  
  Yes, one may apply in a joint name. However, the demat accounts will also be required to be held in joint name and the order of applicants must be the same as appearing in the demat account. Moreover, all payments will be made out in favour of the first applicant as well as all communications will be addressed to the first named applicant whose name appears in the application form and at the address mentioned therein.
   
• Who will get the interest in case of joint application?
  
  In case of joint application, interest will be accounted to the first holder only.
   
• My demat account is in joint name, but I want to apply is a single name?
  
  In case of a single application, demat account of the same single applicant would be necessary. Joint demat account would not do.
   
• If I’m an NRI can I invest in these bonds?
  
  No, NRIs are not eligible to invest in these bonds.
   
• Is there a lock-in period while investing?
  
  No. There is no lock-in period for these bonds.
   
• In whose favour the cheque is to be made?
  
  Cheques have to be made in the favour of “Escrow Account IFCI NCD II Public Issue” and crossed “A/C PAYEE ONLY”.
   

OUR VIEW:

PersonalFN is of the view that although the interest rates offered by IFCI look attractive, its post-tax yields are not up to the mark.

Moreover, according to the press release of the performance highlights for the quarter ended June 30, 2014, the Debt to Equity ratio of the company increased to 3.6 as against 3.2 for the corresponding period in the preceding year. The net Non-Performing Assets (NPAs) of IFCI stand at 10.8% as on June 30, 2014, as against 11.4% as on March 31, 2014. Although there has been a marginal decline in the company’s NPA, we believe NPAs are rather high.

Thus, taking into consideration a holistic view, we believe that you as investors would be better-off giving the on-going public issue of secured, redeemable and non-convertible debentures by IFCI a miss and wait for an opportunity that gives a better post-tax yield at a lower risk to your principal aided by better fundamentals.

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