Monday, 23 Oct 2017

NTPC New Tax Free Bonds

201521Sep

After a gap of one financial year, tax-free bonds are making a comeback this financial year and NTPC is the first public sector enterprise (PSE) to launch the public issue of such bonds from the coming Wednesday, September 23rd. As the company is confident of raising the desired amount very quickly, the issue will remain open for just seven working days to get closed on September 30th i.e. the next Wednesday.

 

Size of the Issue – NTPC has been authorized to raise Rs. 1,000 crore from tax free bonds this financial year and it has already raised Rs. 300 crore by issuing these bonds in private placement. The company will raise the remaining Rs. 700 crore from this issue.

 

The issue size of Rs. 700 crore is very small for a large population of investors waiting for these bonds for around 18 months now and for this reason, I think the issue should get oversubscribed on the first day itself.

 

Rating of the Issue – NTPC is India’s largest power generator and a ‘Maharatna’ company with market capitalization of Rs. 104,759 crore. Being a PSU with strong fundamentals and government backing, CRISIL, ICRA and CARE have assigned ‘AAA’ rating to the issue.

Moreover, these bonds are ‘Secured’ in nature and certain fixed assets of the company will be charged equivalent to the outstanding amount of the bonds.

 

Coupon Rates on Offer – NTPC is offering yearly rate of interest of 7.36% for its 10-year option, 7.53% for the 15-year option and 7.62% for the 20-year option to the retail investors investing less than or equal to Rs. 10 lakh.

As mandated by the government, these rates would be lower by 25 basis points (or 0.25%) for the non-retail investors.

 

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NRI Investment Allowed on Non-Repatriation Basis – Non-Resident Indians (NRIs) are also eligible to invest in this issue, but only on a non-repatriation basis. NRI investors will not be allowed to repatriate its interest amount or maturity proceeds outside India.

 

QFI Investment – Qualified Foreign Investors (QFIs) are not allowed to invest in this issue.

 

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue is reserved i.e. Rs. 70 crore

Category II – Non-Institutional Investors (NIIs) – 25% of the issue is reserved i.e. Rs. 175 crore

Category III – High Net worth Individuals including HUFs & NRIs – 25% of the issue is reserved i.e. Rs. 175 crore

Category IV – Resident Indian Individuals including HUFs & NRIs – 40% of the issue is reserved i.e. Rs. 280 crore

 

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

 

Listing & Allotment – NTPC has decided to get these bonds listed on both the stock exchanges i.e. National Stock Exchange (NSE) as well as the Bombay Stock Exchange (BSE) and has successfully got the necessary in-principle listing approval also from these exchanges. The bonds will get allotted and listed within 12 working days from the closing date of the issue.

 

Demat Account Mandatory –.NTPC has decided to allot these bonds only in dematerialised form and thus, the investors do not have the option to apply these bonds in physical or certificate form.

So, if you want to apply for these bonds in this issue and do not have a demat account, act now as you have only two days with you to get a demat account opened. However, once allotted in demat form, the investors can rematerialise the bonds in physical/certificate form if they decide to close their demat account in future.

 

No Lock-In Period – These tax-free bonds are freely tradable and do not carry any lock-in period. The investors may sell them at the market price whenever they want after these bonds get listed on the BSE or NSE.

 

Interest on Application Money & Refund – Successful allottees will earn interest at the applicable coupon rates on their application money, from the date of realization of application money up to one day prior to the deemed date of allotment. Unsuccessful allottees will get interest @ 5% per annum on their refund money.

 

Minimum & Maximum Investment – Investors are required to put in a minimum investment of Rs. 5,000 in this issue i.e. at least 5 bonds of face value Rs. 1,000 each. There is no upper limit for the investors to invest in this issue. However, an investor investing more than Rs. 10 lakhs will be categorized as a high networth individual (HNI) and will get a lower rate of interest as applicable.

 

Interest Payment Date – NTPC will make its first interest payment exactly one year after the deemed date of allotment and the deemed date of allotment will be announced just before the listing date. I will update this post as and when it gets announced.

Fundamentally, NTPC is a good company, ranked nineteenth among the top Indian companies by market capitalization. Also, at present, there are only seven central public sector enterprises (CPSEs) which have been conferred the status of Maharatna and NTPC is one of them.

Among the seven companies which have been authorized to issue tax free bonds this financial year, NTPC is the only company which has the ‘Maharatna’ status.

 

Should you invest in this issue?

 Personally,  feel there is a good scope of 50 basis points (0.50%) rate cut by the RBI in the next 6-9 months and as a result, the 10-year G-Sec yield should fall below 7% by April-June next year. If that materialises, then there would be at least 8-10% appreciation in the market price of these bonds by the end of current financial year.

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NTPC tax-free bonds, you can contact me at +919825078395

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