Wednesday, October 5, 2011

PFC Long Term Infrastructure Bond 2011-2012

Citizens have an option of investing upto Rs. 20,000 in long term infrastructue bonds and get tax benefit on that amount under Section 80CCF. This was made additional to the Rs 1 Lakh under Section 80C.

Power Finance Company (PFC), is the second company after IFCI to come out with long term infrastructure bonds this year. The issue contains 4,00,000 secured, redeemable, non-convertible bonds of Rs. 5,000/- each aggregating to Rs 200 crore with a green-shoe option to retain over-subscription.

The issue opens on 29 September and closes on 4 November, 2011. The tenure ranges from 10 to 15 years and interest rate ranges from 8.5% to 8.75%. Resident Indians and HUFs are eligible for the issue.

There are 4 options with this series:
Option 1: Tenure is 10 years. Interest Rate at 8.5% and interest will be paid at maturity.
Option 2: Tenure is 10 years. Interest Rate at 8.5% and interest will be paid annually.
Option 3: Tenure is 15 years. Interest Rate at 8.75% and interest will be paid at maturity.
Option 4: Tenure is 15 years. Interest Rate at 8.75% and interest will be paid annually.

There is a lock-in period of 5 years from the deemed date of allotment. There is also a buy back option at the end of 5th year for 10 year bond and at the end of 7th year for 15 year bond.

The bond shall be listed on BSE and Karvy Computershare Pvt Ltd is the registrar to the issue. 

Refer last year's issue from PFC here!

Recommendation:
The issue has been rated AAA/Stable by CRISIL and AAA with stable outlook by ICRA. We think it is too early to invest in long term infrastructure bond for 2011. As mentioned in the last post for IFCI bond, we were expecting more companies to come out with long term infrastructure bond which can be used for additional tax benefit on Rs 20,000. We would recommend to wait for the last week of 4th November to invest in one of these bonds (Interest rates offered by IFCI and PFC are same). It is likely that some other company may come out with another issue offering higher rate. In any case, no point in locking the money so soon at a lower interest rate.