How would be the proceeds from these bonds used?
The proceeds from these bonds will be utilised for the purpose of infrastructure lending as defined by RBI (as per the guidelines issued by it).
The details on the "long-term infrastructure bonds" offered by the issuer IDFC Ltd. are as under:
| Issuer |
IFCI Limited ("the Issuer") |
Offering
Instrument |
68,00,000 Secured, Redeemable, Non-Convertible, Taxable Bonds of Rs 5,000 each aggregating to Rs 3,400 Crore in one or more tranches
Secured, Redeemable, Non-Convertible, Taxable Bonds having benefits under section 80 CCF of the Income Tax, 1961 for long term Infrastructure Bonds |
| Rating |
LAAA- by ICRA |
| Eligible Investors |
Retail Individual and HUF |
| Security |
First pari passu floating charge over the Secured Assets and first fixed pari passu over specified immovable properties of the Company more particularly |
| Security cover |
1.0 times the outstanding Bonds at any point of time. |
| Face Value |
Rs 5,000 per bond |
| Issue Price |
At par (Rs 5,000 per bond) |
| Minimum Subscription |
2 Bonds and in multiples of 1 Bond thereafter, |
| Tenure |
10 years, with or without buyback option after five years |
| Options for Subscription |
The Bonds are proposed to provide the following options-
- Series I - Non-cumulative and no Buyback
- Series II - Cumulative and no Buyback
- Series III - Non-cumulative and Buyback after 5 years
- Series IV - Cumulative and Buyback after 5 years
|
| Redemption / Maturity |
At par at the end of 10th year from the deemed date of allotment. For Cumulative Option, at par with cumulated interest thereon. |
| Coupon rate |
- Series I - Non-cumulative and no Buyback - 8.00% p.a.
- Series II - Cumulative and no Buyback - 8.00% p.a.
- Series III - Non-cumulative and Buyback after 5 years - 7.5% p.a.
- Series IV - Cumulative and Buyback after 5 years - 7.5% p.a.
|
| Listing |
Bonds will be listed on NSE & BSE |
| Trustee |
IDBI Trusteeship Services Limited |
| Depository |
National Securities Depository Limited and Central Depository Services Limited |
| Registrars |
Karvy Computer share Private Limited |
| Mode of Payment |
Interest payment will be made through ECS/At Par Cheques/Demand Drafts |
| Issuance |
Demat / Physical |
| Trading |
Demat mode only |
| Issue Open Date |
September 30, 2010 |
| Issue Close Date |
October 22, 2010 |
| Deemed Date of Allotment |
As determined by the Board of the Company |
Note: PAN card is mandatory for subscribing to these bonds. A self attested copy shall be enclosed along with the application form.
Investors’ will also have the following options available at the time of subscribing to the issue:
(Source: Application form of IDFC Ltd. & PFN Research)
Well, after reading the details of the scheme, there may be still some more questions popping up, which are attempted to answer herein:
Can one pledge or lien or hypothecate the bond, while obtaining a loan from a scheduled commercial bank?
Yes, one may pledge or lien or hypothecate the bond, while obtaining a loan from a scheduled commercial bank. However, this can be done once the said lock-in period is over.
TAXATION OF LONG-TERM INFRASTRUCTURE BONDS:
Your investment in these "long-term infrastructure bonds" will be eligible for a deduction under section 80CCF of the Income Tax Act, 1961 subject to a maximum limit of Rs 20,000. This deduction limit of Rs 20,000 will be over and above Rs 1,00,000 benefit available under section 80C, 80CCC and 80CCD.
However, the interest earned by you on the investments (in these bonds), will be taxed (they would be included in the "Income from Other Sources", in the financial year in which it is received). However, since these bonds are compulsorily issued in a demat mode and listed on the exchange, no Tax Deduction at Source (TDS) will be done on the interest received.
OUR VIEW:
In our opinion investments in IDFC's long-term infrastructure bonds, appears enticing only from a tax planning perspective, as an investment upto Rs 20,000 will be eligible for an additional (over and above Rs 1,00,000 benefit limit available under section 80C, 80CCC and 80 CCD of the Income Tax Act, 1961) tax benefit.
It would not be prudent to invest an amount over Rs 20,000, as the excess investment amount over Rs 20,000 will not be eligible for income tax benefit under section 80CCF. Also we are in a scenario of rising interest rates, whereby going forward there may be such other offerings under section 80CCF by the eligible issuers, which may offer a better rate of interest along with tax benefit.
As regard the question which series to invest is concerned; it is prudent to invest in the non-cumulative buy-back option for the high post-tax yield offered by it. However, while opting this investors should ideally invest the pay-outs received by them in higher yielding securities (offering interest over 8.00%) in order to enjoy higher benefits. If the non-cumulative buy-back option is not preferred by one, then the next best option (in terms of the post-tax yield) is cumulative buy-back option.