Ennore Port Too Comes Up With Tax Free Bonds

DSIJ Intelligence / 06 Mar 2013

This is the 6th company to have issued tax free bonds, but the options that the company has put forth look quite similar to what the other companies have offered.

Ennore Port is the latest entry in the list of the previous list of 5 companies - PFC, REC, IRFC, IIFCL and HUDCO - who have come up with their tax free bonds. Most of these have offered similar coupon rates and tenures. They are all expected to close around the same day too i.e. March 15, 2013. We have analysed all of them for our readers to access them on the DSIJ website.

Ennore Port is the 12th major port under the Ministry of Shipping. The company commenced its operations way back in June 2001 and currently has 5 operating terminals located in Chennai. The company has also been awarded the Mini-Ratna status in June 2009. The award was based on the company's continuous profitability.

Coming back to the tax free bonds, the funds raised from this issue would be used for partially financing the National Maritime Development Programme which includes capital dredging projects, connectivity projects and procurement of land for infrastructure projects, according to a press release from the company.

Ennore Port – Issue Information
ParticularsOption IOption II
Face Value Rs 1,000
Minimum Application Rs 5000 (i.e. 5 Bonds)
Horizon (Years) 10 15
Coupon for Retail Individual (% p.a.) 7.51 7.67
Interest Payment Annual
Issue Opens On February 28, 2013
Issue Closes On March 15, 2013
Listing on exchange BSE
Tax Rate (%) Effective Yield (Post Tax)
10.3 8.37 8.55
20.6 9.46 9.66
30.9 10.87 11.09
The company plans to raise funds up to Rs 500 crore with an option to retain over subscriptions up to Rs 500 crore, aggregating to Rs 1000 crore. Ennore Port, like most of its peers, has come up with two options. The first one has a tenure of 10 years offering a coupon rate of 7.51%, while the second one is for a tenure of 15 years having a coupon rate of 7.67%. The issue has already opened on February 28, 2013 and will close on March 15, 2013. The interest on these bonds would be paid annually. The minimum application for the issues is Rs 5000 (i.e. 5 bonds of a face value of Rs 1000 each) and thereafter the application can be made in the multiples of one bond i.e. Rs 1000. They would be listed on the BSE.

Overall, we believe that the company is offering coupon rates which are similar to those of that of its peers. However, it is lower than HUDCO’s by 2 basis points on both the options. We, at Dalal Street Investment Journal (DSIJ), have been advising investors to take a wait-and-watch approach and select the offer of the company which gives the best rates. We had also said that among the existing issues, HUDCO's offering looks best and we continue to believe the same.

Hence, we would advise investors to go for the HUDCO issue and the issue of Ennore Port could be skipped. One should not forget that this kind of issue is more suitable to investors who fall in the higher tax bracket and are willing to lock in funds for a longer horizon.

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