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Monday, January 2, 2012

Prajna Capital

NHAI Tax Free Bonds and PFC Tax Free Bonds can deliver high Capital Gains when Interest Rates Fall

Posted: 02 Jan 2012 04:45 AM PST

Download PFC Tax Free Bonds Application Forms

The . 10,000-crore National Highways Authority of India, or NHAI, bond offering, which opens for subscription on December 28, offers a good opportunity to investors to lock in funds at higher yields and earn tax-free interest income, according to wealth managers.

Apart from coupon rates in excess of 8%, NHAI bonds will start delivering high capital gains once interest rates start moving downwards.

Forty per cent of the . 10,000-crore issue is earmarked for institutional investors, 30% for retail investors and high net worth individuals. The bonds will have differential coupon rates of 8.2% for 10 years and 8.3% for 15 years, merchant bankers say.

The NHAI issue presents a good opportunity for investors to lock money in triple-A-rated sovereign-like bonds at higher yields. Apart from high coupon rates and safety, these bonds will be very liquid because of the large float. Investors will easily be able to buy and sell these bonds on the exchange.

These should be a part of the core fixed income portfolio.

National Highways Authority of India will use the issue proceeds to part fund land acquisition, meeting viability gap funding and annuity payments among others.
According to wealth managers, tax-free bonds — even if it bears a lower pay-out rate than G-Secs and corporate bonds — are good bets for investors in the current scenario as not many asset classes are generating near-8% risk adjusted (tax-free) returns. Despite 10-year G-secs and bank fixed deposits yielding 8.3% and 9.25%, respectively, wealth managers expect the bond to attract investments because of its tax-free status.

An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits, which are currently giving about 9% (pre-tax) returns.

Also, with interest rates expected to slide over the next few months, money managers are hoping to generate higher returns by selling these bonds at a relatively higher coupon rate. In the event of a fall in interest rates, wealth managers expect 5-10% price appreciation on premature encashment of the bond.

How to apply ?

You can download the forms below

Download Application Forms

Submit the filled up form to Collection canter near you

Muthoot Finance Limited NCD – 13% plus Fix returns

Posted: 01 Jan 2012 06:59 PM PST

Download Muthoot Finance NCD Application Forms

Apart from attractive rates, the secured nature of Muthoot's lending (loans against gold) offers some margin of safety in terms of loan to value, investment grade rating (CRISIL AA-) and strong track record with 70 years of experience in gold financing business support the investment. An AA- rating is defined as carrying "very low credit risk".

Investors can avoid the three year and five year instruments as the 0.25 percentage point higher than the two year rate of interest doesn't really make up for the risks of holding on for a longer tenure.

ABOUT THE COMPANY

Gold loans account for 99 per cent of Muthoot's assets under management with predominant exposure to South India. It has a low proportion of non-performing asset (gross NPA ratio of 0.31 as of June 2011) thanks to gold as collateral. Muthoot has made profits in at least last seven fiscal years. It has 120 tonnes of gold against which it lent at average loan-to-value of 72 per cent. The issue also gives comfort from the gold price movement perspective. Gold prices may continue to remain firm for some time given its safe haven status.

The assets under management are close to Rs 18,000 crore. The interest spreads (difference between interest earned and interest expended) of Muthoot was 10.9 per cent for the quarter ended June 2011. The company has been raising money from retail investors for quite some time through private placement of secured NCDs. As of June 2011, retail NCD borrowings accounted for 26 per cent of overall borrowing. The capital adequacy ratio of Muthoot is strong at 19.2 per cent as of June 2011 as against mandatory requirement of 15 per cent.

Issue opening date – 22 Dec 2011

Issue Closing date – 7 Jan 2012

Issue size – INR 300 Crore with an option to retain oversubscription upto INR 300 Crore aggregating to a total of INR 600 Crore.

Instrument – Public issue of Secured Non- Convertible Debenture (NCD)

Ratings – AA-/Stable by both Crisil & CARE

Face Value – INR 1000/NCD

Minimum Application – 5 NCD = INR 5000

Listing - BSE

Coupon Rate %	I	II	III	IV (Yield)
	13%	13.25%	13.25%	13.43%
Tenor	24 Months	36 Months	60 Months	66 Months
Interest Payment	Annual	Annual	Annual	Cumulative

A WORD OF CAUTION

Muthoot Finance is the fifth non-banking finance company (NBFC) to come up with a public issue of NCDs in the last couple of months. It is also fourth company in as many weeks to hit the market with secured NCD issue. Given such high dose of NCD issuances, investors should avoid allocating too large a portion of their portfolio to such NCDs.

How to apply to Muthoot Finance NCD?

You can download the forms below

Download Application Forms

Submit the filled up form to Collection canter near you