Energy sector plays a major role in the development of a country. Despite adding huge capacities in power generation; India still faces supply deficit. This is partially on account of raw material constraints and also because of distribution losses. Nonetheless, India’s power generation capacity needs to be augmented further before the demand-supply mismatch is completely met. Power sector is a capital intensive sector which often faces financing hitches. To overcome these constraints, some Non-Banking Finance Companies (NBFCs) have been founded. These companies are focused mainly on providing financial assistance to power and allied sectors.

Power Finance Corporation Limited (PFC) is one such NBFC classified as an Infrastructure Finance Company (NBFC-ND-IFC), and is incorporated with an objective to provide financial resources and encourage flow of investments to the power and associated sectors, to work as a catalyst to bring about institutional improvements in streamlining the functions of its borrowers in financial, technical and managerial areas to ensure optimum utilisation of available resources and to mobilise various resources from domestic and international sources at competitive rates. The company was conferred the status of Navratna by the Department of Public Enterprises (DPE) in 2007, and is a Government of India (GoI) entity, who has a well-established relationships with State Governments, regulatory authorities and major power sector organisations, Central and State power utilities, as well as private sector power project developers. The company has thus far expanded it projects that represent forward and backward linkages to the core power sector projects, including procurement of capital equipment for the power sector, fuel sources for power generation projects and related infrastructure development.

The company being an NBFC and classified as an Infrastructure Finance Company (IFC) in 2010, enables them to effectively capitalise on available financing opportunities in the power sector in India and as a Government owned company loan made by them to Central and State entities in the power sector, are exempt from Reserve Bank of India’s (RBI's) prudential lending (exposure) norms (which are otherwise applicable to non-government owned entities in the power sector). Having said that the company strives to lend to Central and State entities in the Indian power sector by following prudent lending norms and guidelines approved by the Ministry of Power (MoP). Likewise for lending to non-Government entities in the power sector, it follows the norms stipulated by the RBI.

Business Analysis

PFC provides various services and financial products like Project Term Loan, Equipment Lease Financing, Discounting of Bills, Short Term Loan, and Consultancy Services etc. for various power projects in generation, transmission, and distribution sector as well as for renovation & modernization of existing power projects to generate revenue.

Apart from funding, PFC is also entrusted the responsibility to exploit new opportunities in the area of consortium lending, lending to capital equipment manufacturers and fuel supply projects and related infrastructure development projects, renewable energy and Clean Development Mechanism (CDM), and equity funding.
 

Highlight of the Issue

Issuer	Power Finance Corporation Limited
Issue Size	Rs 100 Crore and has a right to retain oversubscription upto the residual shelf limit. The company has a shelf limit of Rs 5000 crore which can be exhausted in fiscal year 2012-13 by way of issuance of bonds in one or more tranches. Out of the allocated limit of Rs. 5,000 crore; the company has exhausted the limit of nearly Rs 1,109.75 crore so far.
Nature of the issue	Public issue of Tax Free, Secured, Redeemable, Non- Convertible Bonds of Face Value of Rs 1,000 each.
Credit Rating	"CRISIL AAA/Stable" by CRISIL, "CARE AAA" by CARE and "[ICRA]AAA" by ICRA
Issue Opens	February 18, 2013
Issue Closes	March 15, 2013
Issue Price	Rs 1,000 each bond
Tenure	Tranche II-Series 1- 10 Year, Series 2-15 years
Coupon rate	Tranche II-Series 1- 6.88% p.a.; Series 2- 7.04% p.a.
Additional Rate	0.50% shall be paid to original Allottees of category IV *
Interest Payment	Annual
Min. Application	5 Bonds (Rs 5,000) and in multiples of 1 bond thereafter
Mode of Holding	Physical and Dematerialised Both
Listing	BSE
Depositories	NSDL and CDSL
Debenture Trustee	IL &FS Trust Company Limited
Registrar	MCS Limited
Quota	40% for category Iv investors *
	* Category IV Investors: Resident Indian individuals and Hindu Undivided Families through the Kartas who apply for Bonds aggregating upto and including Rs 10 lac across all Series of Bonds in Tranche-II

(Source: Issue Prospectus, PersonalFN Research)  

OUR VIEW:

The yields offered to category IV investors will be comparable to gross (i.e. pre-tax) yields of bonds with tenure of 10 and 15 years paying interest at 10.7% and 10.9% respectively. 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 40% reserved for retail investors which enhances the chance of getting allotment. For category IV investors, i.e. for those who invest less than or equal to Rs 10,00,000, incentive of 0.5% is being offered over and above the coupon rate. Considering the highest credit rating and competitive yields, we believe PFC tax free bonds offer a good investment opportunity to investors falling in 30% tax slab.


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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