INVESTOR PRESENTATION

TAX FREE BONDS

2012-13
AGENDA
AGENDA
HISTORY
HISTORY
TAX
TAXFREE
FREEBONDS
BONDS2012
2012--13
13
MACROECONOMIC
MACROECONOMICOUTLOOK
OUTLOOK

2
HISTORY
 INTRODUCT
ION
HISTORY FEATURES

The Central Government introduced The interest income is

Tax Free Bonds in FY 2011-12 worth taxable/exempt. No TDS deducted at
Rs.30,000 crs. time of interest payment
Subsequently, 5 Public Sector Tenure: Choice of 10 years and 15
Enterprises completed Public Issues years
and Private Placements to raise Proposed to be listed on NSE and BSE
resources under these amounts with
No lock-in period
bonds in 10 and 15 year tenors.
Secured issue
Either in Demat or Physical form
FY 2011-12 ISSUERS ADVANTAGES
National Highway Authority
10,000 Cr. The bonds are issued by good rated
of India (NHAI)
central PSUs and are considered
Power Finance Corporation
(PFC)
4,033 Cr. very safe.
Indian Railway Finance Interest earned is Tax exempt
6,300 Cr.
Corporation (IRFC) No cap on amount of investment
Housing & Urban eligible for tax benefits
Development Corporation 4,685 Cr.
(HUDCO) Can be sold in secondary market
Rural Electrification
3,000 Cr.
without any lock-in period
Corporation (REC)
Listed securities 4
 YIELD AND SUBSCRIPTION
PATTERNS
Effective Yield pattern last year

NHAI PFC IRFC HUDCO REC

Tenor 10 years 15 years 10 years 15 years 10 years 15 years 10 years 15 years 10 years 15 years

Post Tax Coupon

8.20% 8.30% 8.20% 8.30% 8.00% 8.10% 8.10% 8.20% 7.93% 8.12%
(Non retail)
(Individuals)
Pre 11.87% 12.01% 11.87% 12.01% 11.58% 11.72% 11.72% 11.87% 11.48% 11.75%
Tax @30.9%
Tax
yield (Corporates)
12.14% 12.29% 12.14% 12.29% 11.84% 11.99% 11.99% 12.14% 11.74% 12.02%
Tax @ 32.45%

Subscription pattern last year

Institutional HNI Retail Overall
Issue Times Issue Times Issue Times Issue Times
Size (in oversubscrib Size (in oversubscrib Size (in oversubscrib Size (in oversubscrib
Rs. Cr) ed Rs. Cr) ed Rs. Cr) ed Rs. Cr) ed
NHAI 4,000 4.04 3,000 2.40 3,000 0.52 10,000 2.49
PFC 2,017 3.51 1,008 1.78 1,008 1.06 4,033 2.47
IRFC 2,821 4.60 1,567 1.92 1,881 1.01 6,269 2.85
HUDCO 2,108 1.17 1,171 1.08 1,405 0.76 4,685 1.02
REC 1,500 1.63 750 2.12 750 0.79 3,000 1.54
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 PERFORMAN
CE
All the five issues of tax free bonds are trading at a premium on the exchanges
A portfolio of with equal allocation in all 5 bonds would have yielded 4.5% in price gain
The following table shows the absolute total post tax gains (Tax free coupon, accrued
interest and Capital Gains) for the different bonds

NHAI PFC IRFC HUDCO REC

Days of investment
317 310 288 277 255
10 Years 11.5% 10.5% 8.8% 8.6% 7.3%
15 Years 14.1% 13.8% 10.4% 8.1% 9.8%
100 Clean price premium
Premium per bond (NHAI)
90
10%
80
9%
70
8%
60
7%
50
6%
Rupees
40
5%
30
4%
20
3%
10
2%
-
1%
0%
10 Years 15 Years
The performance is measured up to 7th November, 2012. All prices taken from exchange platforms. Tax is
assumed at 30.90%. No of days of investments assumes 30 days of investment to allotment. 6
TAX FREE BONDS
2012-13

7
 SCHEDULE FOR FY
2012 - 13
The budget for FY 2012-13 had announced an amount of Rs. 60,000 crores under tax
free bonds. The notification however provides for Rs. 53,500 crores tax free bonds to
be issued by the following
Aggregate Amount of
Entities Bonds (Rupees
Crores)
National Highway Authority of India (NHAI) 10,000 Cr.
Indian Railway Finance Corporation (IRFC) 10,000 Cr.
India Infrastructure Finance Company Limited (IIFCL) 10,000 Cr.
Housing and Urban Development Corporation (HUDCO) 5,000 Cr.
National Housing Bank (NHB) 5,000 Cr.
Power Finance Corporation (PFC) 5,000 Cr.
Rural Electrification Corporation (REC) 5,000 Cr.
Jawaharlal Nehru Port Trust 2,000 Cr.
Dredging Corporation of India 500 Cr.
Tax free Port
Ennore bonds have been continued to provide low cost long term finance to the public
Limited 1,000sector
Cr.
infrastructure space
Issuers can raise resources under the tax free route through both private placement and public
issues. Private placements are expected to begin in November where as Public issues would
kick in from December 8
 TERMS OF THE ISSUE (1/2)

Qualified Institutional Buyers, Corporates, High Networth

Eligible Investors
Individuals, Retail Individual Investors
10 years and 15 Years, (20 Years bond only in case of
Tenure
IIFCL)

Ceiling on Coupon
Retail Individual QIBs, Corporates and
investors HNIs
Individuals, HUFs, NRIs
investing up to Rs. 10 Lakhs

AAA and AA+ Rated RRate - 65 bps RRate - 115 bps

AA Rated and below RRate - 50 bps RRate - 100 bps
Reference G Sec (RRate): Average of base yield of Government Security for equivalent maturity reported by
FIMMDA prevailing for two weeks ending on Friday immediately preceding the filing of final prospectus.

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 TERMS OF THE ISSUE (2/2)

Reference Rate
10 Years 15 Years 20 Years
Average yield for 2 weeks ending 02-11-
8.16% 8.33% 8.36%
2012
Annualized Yield 8.32% 8.50% 8.53%

Limit on Coupon
Retail Individual investors QIBs, Corporates and HNIs

10 Years 15 Years 20 Years 10 Years 15 Years 20 Years

AAA and AA+ Rated 7.67% 7.85% 7.88% 7.17% 7.35% 7.38%
AA Rated and below 7.82% 8.00% 8.03% 7.32% 7.50% 7.53%

Pre tax yields (for 10 Years at cap coupon rates)

Retail Investors QIBs, Corporates and HNIs
Tax Rate AAA & AA+ AA & Below Tax Rate AAA & AA+ AA & Below
0.00% 7.67% 7.82%
10.30% 8.55% 8.72% 30.90% 10.38% 10.60%
20.60% 9.66% 9.85%
30.90% 11.10% 11.32% 32.45% 10.62% 10.84%
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 COMPARABLE
ALTERNATIVES
Scheme Tenor Annu Post Features/Liquidity Tax Breaks
al tax Deposit Interest
Inter retur
est n*

Withdrawal permitted
Public Provident Sec 80C
15 years 8.80% 8.80% only from 6th year, Tax Free
Fund (PPF) benefit
subject to restrictions.
Fixed Deposits - Withdrawal before
Sec 80C
National 5 years 9.58% 6.71% maturity is allowed at a Taxable
benefit
Housing Bank charge
Withdrawal before
Fixed Deposits None, TDS
5 years 8.50% 5.95% maturity is allowed at a None
SBI deductible
charge
5 year tenure, minimum
Senior Citizen's Sec 80C
5 years 9.00% 6.30% age 55, also available Taxable
Saving Scheme benefit
with public sector banks
National Saving No Maximum limit of Sec 80C Taxable but
10 years 8.90% 6.23%
Certificate investment benefit no TDS
Post Office Time 5 year tenure,, no max Sec 80C
5 years 8.77% 6.14% Taxable
Deposit Account limit. benefit
*Post tax return at tax bracket
10 & 15 ofyears
30%. The effect
Referof Section 80C deduction is no
Liquidity, not max
takenlimit,
in calculation
no of post tax returns.
The above data has been extracted on 7th November 2012 Same as respective websites of the issuers and other information available
from
Tax Free Bonds
in news. (20 years for slide min age, Capital gains None No TDS
annual int
IIFCL) #10 possible (slide #6) 11
MACROECONOMIC OUTLOOK
INTEREST RATE SCENARIO

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 MARKET
OUTLOOK
RBI KEEPS POLICY RATES
The Reserve Bank of India (RBI) UNCHANGED
in its mid-quarter review of monetary policy on
30th October 2012 kept the repo rate and reverse repo rate unchanged at 8% and
7%, respectively. It reduced the CRR by 25 bps from 4.50% to 4.25%.
12%

10%

8%

6%

4%

2%

0%

Repo Reverse Repo CRR

The RBI continues to remain hawkish on inflation prospects in the short term.
On one hand the RBI sees pressures on food prices reducing through reduced rainfall deficit and resultant
improvement in prospects for the Rabi crops.
While on the other hand, due to continued demand supply imbalances, the prices of protein items are expected
to see some pressures. The upside risks are also expected to persist in short term due to recent hike in diesel
prices as well as upward momentum seen in non-manufactured products inflation.
As regards the next review, the uncertainty persists, and we would therefore expect the RBI
to condition its response largely looking at the developments in global energy and
commodity prices and its impact on domestic inflation dynamics.

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 MARKET
OUTLOOK
12 GDP growth rate
Growth prospects for the economy expected to be revived by the 10
wave of reforms introduced by the central government. 8
Capital goods growth rate, an indicator of level of investment, has
GDP seen upward movement in recent months.
6
4

Growth IIP data in the past 2 months has seen upward movement. 2
IMF forecasted that the economy will grow by 4.9% during 2012. 0

The estimate by planning commission for first half of the year

however stands at 5.5% and further deceleration is not expected.
12 WPI Inflation
WPI inflation for September 2012 was recorded at 7.81%, higher 10
than 7.55% seen in August 2012 8
Headline inflation has moderated from levels seen in the previous
Inflatio fiscal year but continue to be rather high. It can be expected to
6
4
n remain flat or increase slightly over the coming quarters. 2
CPI inflation is expected to experience upward movement on 0
account of hike in diesel prices.
15%
10 Year G Sec Yields
The benchmark has been stable in the range of 8.10% to 8.20% over
the past one month. 10%

10 year A higher fiscal deficit may increase the governments borrowing 5%

requirement and push the 10-year G-sec yield higher
G-sec RBI has been signalling time and again, that policy rates cuts are 0%
unlikely

The Indian macroeconomic scenario is quite stagnant and hence rate cuts look
imminent. Even RBI has signalled looking at the rates in the January- March quarter.
No major events in the next 4-6 months are likely to affect the capital markets
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drastically.
 DISCLAIM
ER
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THANK YOU

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