India has an undeniable need to create physical infrastructure to be able to sustain the GDP growth of 9%-10%. However, infrastructure projects are always capital intensive in nature and therefore require huge investments. Since the gestation period on these projects is usually longer; raising financial resources becomes difficult for many of the companies engaged in creating infrastructure facilities. However, there have been many state-run as well as private Non-Banking Finance Companies focusing on infrastructure funding. Such companies generally have expertise to identify commercially viable projects. In the Union Budget of 2013-14, the government had proposed to raise a total limit of Rs 50,000 crore via issuance of tax free bonds by institutions.
India Infrastructure Finance Company Ltd (IIFCL) is one such a state own company which provides long term financial assistance to various infrastructure projects in the country. The authorized capital of the company is Rs 5,000 crore and the Paid-Up capital is Rs 2,900 crore (as on March 31, 2013). Apart from equity, IIFCL raises long term debt from the domestic market, debt from bilateral and multilateral institutions and in foreign currency through external commercial borrowings. For lending in the infrastructure sector and augmenting their resource base, the company has planned to raise Rs 1000 crore with an option to retain oversubscription upto Rs 2,000 crore, thereby aggregating to Rs 3,000 crore by issuing secured redeemable non-convertible tax- free bonds of Rs 1,000 each.
Highlight of the Issue
| Issuer |
India Infrastructure Finance Company Limited |
| Issue Size |
Rs. 1000 cr (Base Issue Size) with option to retain oversubscription upto the shelf limit (being Rs. 3000 cr) |
| Nature of the issue |
Public issue of the tax free secured redeemable non-convertible bonds |
| Credit Rating |
"[ICRA] AAA (Stable)" by ICRA ; "BWR AAA (Stable)" by Brickwork , "CARE AAA" by CARE and "IND AAA (Stable)" by IRRPL |
| Issue Opens |
December 9, 2013 |
| Issue Closes |
January 10, 2014 |
| Face Value |
Rs 1,000 each bond |
| Issue Price |
Rs 1,000 each bond |
| Tenure |
Series 1- 10 years, Series 2- 15 years, Series 3- 20 years |
| Coupon rate |
(For Categories I, II, III)Tranch II: Series 1A- 8.41% p.a.; Series 2A- 8.48%p.a.; Series 3A- 8.66%
(For Category IV) Tranch II: Series 1B- 8.66% p.a.; Series 2A- 8.73%p.a.; Series 3A- 8.91% |
| Min. Application |
5 Bonds (Rs 5,000) and in multiples of 1 bond thereafter |
| Mode of Holding |
Physical and Dematerialised Both, but trading in Bonds shall be in Dematerialised form only |
| Listing |
Proposed to be listed in BSE |
| Depositories |
NSDL and CDSL |
| Bond Trustee |
IL&FS Trust Company Limited |
| Registrar |
Karvy Computershare Private Limited |
| Quota |
Category III - Upto 25% of Overall Issue Size* and Category IV - Upto 40% of Overall Issue Size* |
Category III
(Individuals & HUF applying more than Rs. 10 Lakh) |
The following investors applying for an amount aggregating to more than Rs 10 lakh across all series of Bonds in each Tranche Issue
- Resident Individual Investors;
- Hindu Undivided Families applying through the Karta
|
Category IV
(Individuals & HUF applying upto Rs. 10 Lakh) |
The following investors applying for an amount aggregating up to and including Rs. 10.00 lakh across all series of Bonds in each Tranche Issue
- Resident Individual Investors
- Hindu Undivided Families through the Karta
|
*(Allotments of Bonds will be on a first come-first serve basis, on the basis of the date of upload of Applications on the electronic platform of the Stock Exchange)
(Source: Issue Prospectus, PersonalFN Research)
Business Profile
IIFCL is engaged in providing long term financial assistance to commercially viable infrastructure projects with overriding priority PPP projects in the country in designated sectors like:
- Road and bridges, railways, seaports, airports, inland waterways and other transportation projects
- Power
- Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas
- Gas pipelines
- Infrastructure projects in Special Economic Zones
- International convention centers and other tourism infrastructure projects
- Cold storage chains
- Warehouses
- Fertilizer Manufacturing Industry
Modes of Funding:
The company renders financial assistance through:
- Long Term Debt;
- Refinance to Banks and Public Financial Institutions for loans granted by them;
- Take out Financing;
- Subordinate Debt; and / or
- Any other mode approved by the Ministry of Finance from time to time
OUR VIEW:
PersonalFN is of the view that IIFCL tax-free bond provides a good investment opportunity as the rates offered are quite decent. Moreover, there’s no restriction on a bondholder to hold bonds mandatorily for a particular period of time. Investors may sell or buy these bonds anytime on the exchanges, provided that in such a case they are held in a dematerialized mode. Hence investors need not worry much about liquidity in case of immediate need for funds.
The ticket size has been purposefully kept lower for greater retail participation and thus it is well within the reach of retail investors. Further, the quota of 25% and 40% reserved for HNI and retail investors respectively enhances the chances of getting allotment. For category IV investors, i.e. those who invest less than or equal to Rs 10,00,000; incentive of 0.25% is being offered over and above the coupon rate. For a person who invests as a category IV investor and falls in the maximum tax bracket, the gross pre-tax yield comes in the range of 12.53%, 12.63%, and 12.89% for bonds with maturity profile of 10, 15 and 20 years respectively. Likewise for HNIs placed in the highest tax bracket the pre-tax yields are 12.17%, 12.27% and 12.53% for bonds with maturity profile of 10, 15 and 20 years respectively.
Considering the present interest rate scenario, it would be prudent to invest in the bond option with a maturity profile of 10 years. However investors, who have a longer investment horizon and seek a higher interest rate, may consider investing in bond options with maturity profile of 15 years or 20 years depending upon their liquidity needs.
In case you wish to invest in the above instrument, you can email us at info@Personalfn.com or contact us on 022-6136 1200
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