IRFC TAX FREE BONDS 2016 Tranche II review

Published on Tuesday, March 8, 2016 by Dilip Davda

Indian Railway Finance Corporation Ltd. (IRFC) The Ministry of Corporate Affairs, through its notification dated October 8, 1993 published in the Official Gazette of India, classified IRFC, as a Public Financial Institution under Section4 (A) of the Companies Act (as now defined under sub-section 72 of Section 2 of the Companies Act, 2013). It is registered with the RBI under Section45-IA of RBI Act as a Non-Banking Finance Company without accepting public deposits vide certificate of registration no. B-14.00013 dated February 16, 1998. The Company was later classified under the category 'Infrastructure Finance Company' by the RBI through a fresh certificate of registration bearing no. B-14.00013 dated November 22, 2010.

The Government of India, acting through Ministry of Finance has authorized our Company by CBDT Notification-1, to issue tax free, secured redeemable, non-convertible bonds (TFB) of Rs. 1,000 each aggregating to Rs. 6000 crore for the financial year 2015-16. Further, Government of India through CBDT Notification Amendment has further allocated Rs. 3500 crore to IRFC to be raised through private placement and Public Issue during fiscal 2015-16. Now the company is coming out with its Tranche II TFB to raise Rs. 500 crore with a green shoe option to retain oversubscription upto Rs. 1950 crore making the aggregate size of the offer for Rs. 2450 crore.

IRFC is offering secured, redeemable non-convertible debentures having a face value of Rs. 1000 each. This tax free NCDs are bearing coupon rates of 7.04% and 7.35% for 10 yrs and 15 yrs respectively for other then retail category and 7.29% and 7.64% for 10 yrs and 15 yrs for retail category. Minimum application is to be made for 5 bonds and in multiple of 1 bond thereof, thereafter. These bonds are available under demat and physical mode, but trading will take place in demat mode only. Post issue its debt equity ratio will stand enhanced from 7.57 to 8.34.

The funds raised through this Issue will be utilized towards financing the acquisition of rolling stock which will be leased to the MoR in line with present business activities. The utilisation of Issue Proceeds shall be in compliance with various guidelines/regulations/clarifications issued by RBI, SEBI or any other statutory authority from time to time.

These bonds are rated 'CARE AAA' by CARE and 'ICRA AAA' by ICRA and 'CRISIL AAA/Stable' by CRISIL indicating highest degree of safety regarding timely servicing of financial obligations and carry very low credit risk. The issue opens for subscription on 10.03.16 and will close on or before 14.03.16. Post allotment, NCDs will be listed on BSE and NSE.

This issue is lead managed by SBI Capital Markets Ltd, A K Capital Services Ltd, Edelweiss Financial Services Limited, ICICI Securities Ltd, and RR Investors Capital Services Pvt Ltd. Karvy Computershare Pvt Ltd is the registrar and SBICAP Trustee Co. Ltd. is Trustee for the bondholders.

Conclusion: As the interest rates are set to cool down going forward, this offer with above 7% tax free returns for longer tenure worth considering for safe returns.