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PRODUCTNOTETAXFREEBONDS

NHPC - TAX FREE BONDS


ISSUEHIGHLIGHTS
TheCurrentinterestratelevelsofferagreatopportunityforinvestorstolockinhigheraccruals.Taxfreebondsrepresentoneof
thebetteroptionstoexecutethesame,particularlyforinvestorslookingforlongtermaccruals.InFY1314,theGovernmenthas
allowed issue of up to INR 48,000 Cr worth of tax free bonds. In last month, there were three issuances in this category with
yieldsintherangeof8.718.76%.NowNHPCisexpectedtoissuetaxfreebondswithanissuesizeofINR1000Crs.

IssueOpens Friday,October18,2013 IssueSize ` 700 Crs&Shelflimit` 1000Crs
IssueCloses Monday,November11,2013 NRIInvestment NRIsareNotAllowedtoInvest
IssuePrice `1000perBond Int.onAppl.Money 5%p.a.(onRefundAmount)
FaceValue ` 1000perBond Listing BSE &NSE
MinimumApplication 5Bondi.e.`.5000/ Issuance Physical/Demat(exceptQFI)

Risk
Profile
ProductType Rating Recommendation
10Year 15Year 20year
Retail* Others** Retail Others Retail Others
LowRisk TaxFreeBond AAA RetailOption 8.43% 8.18% 8.79% 8.54% 8.92% 8.67%

* Retail Option for individuals if application is for 10 lacs or less * *Others include QIBs, Corporate and HNI's

CreditratingofIssuer: [ICRA]AAAbyICRA,INDAAA(exp)byIndiaRating&ResearchPvtLtd.&CAREAAAbyCARE.

INVESTMENTSTRATEGY
We recommend clients to invest in retail option as yields in retail option are likely to be 25 bps yields higher than in the
secondarymarket.
AAAratedtaxablepapersavailableat9.58%(15Yr)/9.60%(10Yr)p.a.pretax.PreTaxlevelsforPFC(8.92%for20year&8.79%
for 15 year indicative post tax) shall translate into a pre tax yield of 1212.75%, a spread of around 250 bps over similar rated
issues.

ISSUERBRIEF
NHPC limited (NHPC), a Mini Ratna hydroelectric power generating company is involved in the planning, development and
implementationofanintegratedandefficientnetworkofhydroelectricpowerprojectsinIndia. NHPCexecutesandmanages
all aspects of projects, from frontend engineering design to commissioning and operation and maintenance of a project. It
alsoprovidescontractbasedtechnical,managementadvisoryandconsultancyservicestodomesticandinternationalclients.
NHPC seeks to expand its installed capacity and diversify its generation mix by undertaking projects for generation of power
throughthermal,solarandwindenergy.
NHPChasdevelopedandconstructed17hydroelectricpowerstationswithitscurrenttotalinstalledcapacitybeing5,702MW.
NHPCispresentlyengagedintheconstructionof7additionalhydroelectricprojects,whichareexpectedtoincreaseitstotal
installed capacity by 4095 MW. It is awaiting government sanction for a further five projects with an anticipated capacity of
5,115MWinadditiontothegovernmentsanctionforthecertainjointventureprojectswithananticipatedcapacityof3,686
MW.

TAXFREEBONDS
Taxfreebonds(TFB)areissuedbyselectCentralGovernmentPSUs.Thisyearthebondsareproposedfor10,15&20yrstenure.

WHYINVESTINTFB

TFBappealtoinvestorswhoarelookingforfixedandsafereturnskeepingtherisklevelasthesameasthatofaBankFD
1. TaxFreeInterest:TFBscoresoveraBankFDsincetheInterestistaxfreeinthehandsofinvestors(TDSisnotdeductedon
interest).Itisnotincludedinthetotalincomewhilefilingincometaxreturns(undersection10(15)(iv)(h)oftheIncomeTax
Act,1961).
2. Safety:TFBareissuedbyPSUsandcomewiththehighcreditrating.

3. MarketTiming:InterestrateinIndiaisveryattractiveatthisjuncture.Thisissuanceislikelytoofferhigheryieldsthanother

PRODUCTNOTETAXFREEBONDS

taxfreebondsissuedinthelastfewyears(asareference,weightedaverageinterestrateonalloutstandingtaxfreebonds
issuedbyPFCis8.26%)andthereforeoffersanopportunitytolockontohighinterestratesforlongdurationsupto20yrs.
4. Tradable:Listedonstockexchanges,freelytradableonstockexchange(s).Unlikelasttime,thereisnostepdowntoretailso
betterliquidityandactivetradingofthesecurityshouldensue.
5. RetailPreference:TFBgivehighercoupontoretailinvestors.WhenTFBissoldbyaretailinvestortoanotherretailinvestor
thebondsstillgivethesamehigherinterestrate.
6. Format:Optionofholdingbondsin'DematForm'aswellasPhysicalFormeasytohandle&monitor

INVESTORSEGMENTSINTFB
Investorsinthesebondsareclassifiedintooneofthefollowing4categories:
1. QualifiedInstitutionalBuyers(QIBs):Financialinstitutions,SuperannuationFunds,FIIsetc.
2. Corporates,CooperativeBanks,RRBs,Trustsetc.
3. HighNetWorthIndividuals(HNIs):Anyindividualinvestmentabove`10lakhs
4. RetailIndividualInvestors(RIIs):Anyindividualinvestmentlessthan`10lakhs.

COMPARISONOFVARIOUSDEBTINVESTMENTS
Parameters TFB FDs PostalSchemes
SafetyRisk
Secured,paripassucharge.Relativelyverylow
Risk.QuasiSovereign
Moderate(BankFD)toHighRisk(PrivateCosFD). SovereignRisk.Safe.
Liquidity Listed,tradable Nottradable,penalinterestifliquidated NotLiquid
PreTaxYield% 12.0012.50(Assuming30%TaxSlab) 9.0010.75 8.809.00
CapitalAppreciation PossibleLinkedwithinterestmovement Nil Nil

CHEQUEDETAILS
ForResident:"EscrowAccountNHPCPublicIssue"

SPECIFICTERMSFOREACHSERIESOFBONDS
Options
SeriesofBonds*
ForCategoryI,II&III**
Series1A Series2A Series3A
CouponRate(%)p.a. 8.18 8.54 8.67
AnnualisedYield(%)p.a. 8.18 8.54 8.67
Options
ForCategoryIV**
Series1B Series2B Series3B
CouponRate(%)p.a. 8.43 8.79 8.92
AnnualisedYield(%)p.a. 8.43 8.79 8.92
ForCategoryI,II,III&IV**
MinimumApplication 5Bonds(Rs.5000)(individuallyorcollectively,acrossallSeries)
Inthemultipleof OneBond(Rs.1000)
Tenor 10years 15years 20years
Maturity/RedemptionDate
10yearsfromtheDeemed
DateofAllotment
15yearsfromtheDeemed
DateofAllotment
20yearsfromtheDeemedDate
ofAllotment
RedemptionAmount(Rs./Bond)
RepaymentoftheFaceValueplusanyinterestattheapplicableCoupon/InterestRatethat
mayhaveaccruedattheRedemptionDate
Coupon/InterestType FixedCouponRate
Coupon/InterestPaymentDate Thedate,incaseofthefirstcoupon/interestpaymentshallbeApril1,2014andfor
subsequentFiscalYearstheinterestpaymentdateshallbeonApril1ofeveryFiscalyear.
ThelastinterestpaymentineachcasewillbemadeontheRedemptionDateonproratabasis.
FrequencyofCoupon/InterestPayment Annual
*TheCompanyshallAllotSeries2A/Series2B(dependinguponthecategoryofapplicants)toallvalidapplications,whereintheApplicantshavenotindicated
theirchoiceoftherelevantSeriesofBond.**InpursuanceoftheCBDTNotificationandforavoidanceofdoubt,itisclarifiedasunder:

PRODUCTNOTETAXFREEBONDS

a.ThecouponratesindicatedunderSeries1B,Series2BandSeries3BshallbepayableonlyonthePortionofBondsallottedtoRIIsintheIssue.Suchcouponis
payableonlyifontheRecordDateforpaymentofinterest,theBondsareheldbyinvestorsfallingunderRIICategoryvizCategoryIV.
b.IncasetheBondsallottedagainstSeries1B,Series2BandSeries3BaretransferredbyRIIstoNonRIIsviz,QIBs,Corporatesand/orHighNetworthIndividuals,
thecouponrateonsuchBondsshallstandatparwithcouponrateapplicableonSeries1A,Series2AandSeries3Arespectively.
c.IftheBondsallottedagainstSeries1B,Series2BandSeries3Baresold/transferredbytheRIIstoinvestor(s)whofallundertheRIIcategoryasontheRecord
Dateforpaymentofinterest,thenthecouponratesonsuchBondsshallremainunchanged;
d.BondsallottedagainstSeries1B,Series2BandSeries3BshallcontinuetocarrythespecifiedcouponrateifontheRecordDateforpaymentofinterest,such
BondsareheldbyinvestorsfallingunderRIICategory;
e.IfonanyRecordDate,theoriginalRIIallotee(s)/transferee(s)holdtheBondsunderSeries1B,Series2BandSeries3Bforanaggregatefacevalueamountof
overRs.10lakh,thenthecouponrateapplicabletosuchRIIallottee(s)/transferee(s)onBondsunderSeries1B,Series2B,Series3Bshallstandatparwith
couponrateapplicableonSeries1A,Series2A,andSeries3A,respectively;
f.BondsallottedunderSeries1A,Series2AandSeries3AshallcarrycouponratesindicatedabovetilltherespectivematurityofBondsirrespectiveofCategoryof
holder(s)ofsuchBonds;
g.ForthepurposeofclassificationandverificationofstatusoftheRIICategoryofBondholders,theaggregatefacevalueofBondsheldbytheBondholdersinall
theSeriesofBonds,allottedundertherespectiveIssueshallbeclubbedandtakentogetheronthebasisofPAN.

WhoCanApply
Categories I(QIB) II(NII) III(HNI) IV(Retail)
Reservation
Portion 15%ofOverallIssueSize 20%ofOverallIssueSize
25%ofOverall
IssueSize
40%of
OverallIssue
Size
Publicfinancialinstitutionsas
definedinSection4Aofthe
CompaniesAct,
IndianAlternativeInvestment
Fundseligibletoinvestunderthe
SEBI(AlternativeInvestment
Funds)Regulations,2012;
Scheduledcommercialbanks,
MutualfundsregisteredwithSEBI,
Stateindustrialdevelopment
corporations,
Insurancecompaniesregistered
withtheInsuranceRegulatoryand
DevelopmentAuthority,
Providentfundswithaminimum
corpusofRs.25crore,
Pensionfundswithaminimum
corpusofRs.25crore,
TheNationalInvestmentFundset
upbyresolutionF.No.2/3/2005
DDIIdatedNovember23,2005of
theGoI,publishedintheGazette
ofIndia,
Insurancefundssetupand
managedbythearmy,navy,orair
forceoftheUnionofIndia,and
Insurancefundssetupand
managedbytheDepartmentof
Posts,Indiawhichareauthorized
toinvestinBonds.
Companieswithinthe
meaningofsection
2(20)oftheCompanies
Act,2013,
LimitedLiability
Partnershipsregistered
undertheprovisionsof
theLLPAct,
Statutorycorporations,
Trusts,
Partnershipfirmsinthe
nameofpartners,
Cooperativebanks,
Regionalruralbanks,
Societiesregistered
undertheapplicable
lawsinIndia,
AssociationofPersons,
and
Otherdomesticlegal
entitiesregistered
underapplicablelaws
inIndiawhichare
authorisedtoinvestin
Bonds
Thefollowing
investorsapplying
foranamount
aggregatingto
morethanRs.10
lakhacrossall
SeriesofBondsin
theIssue
Resident
Individual
Investors
HinduUndivided
Families
applying
throughthe
Karta
Thefollowing
investors
applyingfor
anamount
aggregating
uptoand
includingRs.
10lakhacross
allSeriesof
Bondsinthe
Issue
Resident
Individual
Investors
Hindu
Undivided
Families
throughthe
Karta

PRODUCTNOTETAXFREEBONDS

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