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 Union Budget 2012-13, the government had fixed a target of raising Rs 60,000 crore through PSUs via issuance of tax free bonds.

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 currently Rs. 2,500 crore. 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. As a part of its business activity, the company has planned to raise Rs 1,500 crore (with an option to retain oversubscriptions upto Rs 9,125 crore) by issuing secured non-redeemable tax free bonds of Rs 1,000 each.
 

Highlight of the Issue

Issuer	India Infrastructure Finance Company Limited
Issue Size	Rs 1,500 Crore with a green shoe option to retain subscriptions upto Rs 9,215 crore
Nature of the issue	Public issue of the tax free bonds in the nature of secured redeemable non-convertible bonds
Credit Rating	“[ICRA] AAA (Stable)” by ICRA ; “BWR AAA (Stable)” by BRICKWORK and “CARE AAA” by CARE
Issue Opens	December 26, 2012
Issue Closes	January 11, 2013
Issue Price	Rs 1, 000 each bond
Tenure	Series 1- 10 Year, Series 2-15 years, Series 3-20 Year
Coupon rate	Series 1- 7.19% p.a.; Series 2- 7.36%p.a.; Series 3- 7.40%
Additional Rate	0.50% shall be paid to original Allottees of category IV *
Min. Application	5 Bonds (Rs 5,000) and in multiples of 1 bond thereafter
Mode of Holding	Physical and Dematerialised Both
Depository	NSDL and CDSL
Trustee	IL&FS Trust Company Limited
Quota	40% for category Iv investors and 30% for category III investors**
	* Resident Individual Investors and Hindu Undivided Families through the Karta applying for Bonds aggregating up to and including Rs. 10 lakhs across all Series of the bond issue.
	* * Resident Individual Investors and Hindu Undivided Families through the Karta applying for Bonds aggregating more than Rs. 10 lakhs across all Series of the bond issue.

(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
• Any other mode approved by the Ministry of Finance from time to time.
   

Since its inception in April 2006, the company has sanctioned loans approximately worth of Rs. 61,219 crore to 267 infrastructure projects spread across 24 states of the country.

OUR VIEW:

In our opinion IIFCL tax free bond provides an excellent 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. 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 40% reserved for retail investors 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 0.5% 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, gross pre- tax yield comes in the range of 11.1%- 11.4% for bonds with maturity profile of 10 years, 15 years and 15 years maturity.

We believe that IIFCL tax free bond is an attractive offering considering the rating profile of the issue and competitive yield (compared to post tax yield on other fixed income instruments) for those in the maximum tax bracket.


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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