NTPC Tax Free Bonds (Sept 2015) issue review

Published on Friday, September 18, 2015 by Dilip Davda

On one hand, secondary market is on a testing time with fresh bottom searching of recent times, on the other hand primary market in dilemma with poor listing of recent IPOs. Amidst such a scenario, debt offers are likely to steal the show for a while. We have debt offer from Muthoot Finance going on. But eagerly awaited Tax-Free Bonds is finally making a bee-line with NTPC offer. Details of NTPC Tax Free bonds are as under:

NTPC Ltd (NTPC) is a Government of India enterprise in thermal/renewal power generation and distribution segment. The company is coming out with its Tax Free Secured Redeemable Bonds issue that opens for subscription on 23.09.15 and will close on or before 30.09.15. Allotment for this offer will be made on first-come, first-serve basis in demat mode only. Bonds having face value of Rs. 1000 each is having tenure of 10 years, 15 years and 20 years and the total aggregate size of the offer is Rs. 700 crore (including oversubscription of Rs. 300 crore). Minimum application is to be made for 5 bonds and in multiple of 1 bond thereon, thereafter. Interest on these bonds will be paid on annual basis. Funds mobilized through this offer will be used for capital expenditure in solar power. Coupon rates are fixed at 7.11% (10 yrs), 7.28% (15 yrs) and 7.37% (20 yrs) for category I, II and III while category IV (i.e. retail investors) will get 7.36% (10 yrs), 7.53% (15 yrs) and 7.62% (20 yrs) tax free. Its debt equity ratio post this issue will remain same at 1.25.

NTPC has reserved 10% issue for QIBs (Category I), 25% for Corporate (Category II), 25% for HNIs (Category III) and 40% for Retail (Category IV). Retail investors can investment up to Rs. 10 lakh. Allotment will be made as under if there is any under subscription in any Portion (while other Portions are oversubscribed), priority in Allotments will be given in decreasing order of priority -Retail Individual Investor Portion; -High Net worth Individual Portion; - Corporate Portion; followed by QIB Portion.

In case of over-subscription, Allotments to the maximum extent possible, will be made on a first-come first- serve basis and thereafter on a proportionate basis in each Portion, determined based on the date of upload of each Application into the electronic system of the Stock Exchanges, meaning full Allotment of Bonds to the Applicants on a first-come-first-serve basis up to the date falling one day prior to the date of over-subscription and proportionate Allotment of Bonds to the Applicants on the date of oversubscription.

This issue is rated by ICRA as 'AAA (Stable)', by CRISIL as 'AAA' and by CARE as 'AAA' indicating at the highest degree of safety regarding timely servicing of financial obligations and carry lowest credit risk.

On performance front, the company has been able to post rise in top line for past three fiscals, but bottom line has been on declining mode. Pressure on margins is attributed to stress on infra developments witnessed and in line with general trends. Its depreciation provisions and finance costs have gone up gradually for past three fiscals. Its consolidated turnover has improved from Rs. 75282.23 crore in FY13 to Rs. 82700.95 crore in FY15, but its net profit has declined from Rs. 12590.78 crore in FY13 to Rs. 9986.34 crore in FY15. Depreciation is up from Rs. 3823.22 crore to Rs. 5564.61 crore and Finance Cost is up form Rs. 2480.54 crore to Rs. 3570.37 crore for the said years.

Issue is lead managed by A K Capital Services Ltd, Axis Capital Services Ltd, Edelweiss Financial Services Ltd, SBI Capital Markets Ltd. Karvy Computershare Pvt Ltd is the registrar to the issue. IDBI Trusteeship Services Ltd is the Bonds Trustee.

Remarks: As market is expecting rate cut in near term, this offer is considered to be the safe and most attractive one. Grab it.