PFC Tax Free Bonds – Tranche 2

PFC has tapped the market with its Tax free bonds issue once again through its second tranche of this fiscal. As per the Central Board of Direct Tax (CBDT) Notification, the company can raise funds by issuing tax free bonds up to Rs 5,000 crore for this fiscal. PFC had raised approximately Rs 410 crore through private placements and Rs 699.75 crore through Tranche 1. In this issue (Tranche 2), it proposes to raise Rs 100 crore with an option to retain over-subscription up to the residual shelf limit of Rs 3,890.25 crore prior to March 31, 2013.  

Like the Tranche 1 issue, which came in mid-December, the company has offered two options – the first one for 10 years while the second is for a horizon of 15 years. For the first option, the coupon rate offered by the company for the retail individual is 7.38%, while it is higher by 16 basis points to 7.54% for the second option. The interest on the same would be paid annually to the investors.

The minimum application for the issue is Rs 5,000 (i.e. 5 bonds of a face value of Rs 1,000 each) and thereafter the application can be made in multiples of one bond i.e. Rs 1,000. The issue has opened today (February 18, 2013) and will be closing on March 15, 2013. An earlier issue of these bonds would also be listed on the exchange.  

One should broadly recollect that we had recommended our investors to subscribe to the issue when it had tapped the market in December 2012. Nevertheless, the ones who have missed out are also not too late, as the interest rate would be declining in the longer run. As of now, though this issue looks attractive, we would advise our readers to take a pause and wait till March 15, 2013 (closing date which could probably be extended) and also consider other similar issues set to hit the markets soon. One should invest in that issue which gives a higher coupon rate for a longer horizon. We would be updating investors on the same and would hence request you to kindly visit our website regularly.