Tax Free Secured Non-Convertible Bonds by IRFC Ltd

Public Issue of Tax Free Secured Non-Convertible Bonds by IRFC Ltd

Brief Introduction of the company:

• Financing arm of the Indian Railways, notified as a Public Financial Institution under Section 4A of the Companies Act, 1956.
• Registered as a NBFC-ND-IFC (Infrastructure Finance Company) with Reserve Bank of India. 100% shareholding held by Government of India. Consistently, profit making Public Sector Undertaking. Consistently rated ‘AAA’ by CRISIL, ICRA and CARE  Impeccable track record of funding rolling stock asset creation worth Rs. 60,163 crore (5,060 locomotives, 32,115 passenger coaches and 1,39,659 freight cars) for Indian Railways so far, besides providing funding support of Rs. 2,294 crore to other Railway entities such as Rail Vikas Nigam Ltd., Rail Tel Corporation of India Ltd. Etc
• Networth as on September 30, 2011 is Rs 4487.49 crores. Net Profit after Tax as on September 30, 2011 is 201.52 crores and it stood at Rs.485.20 crores for year ended March 31, 2011 compared to Rs 442.69 crore in March 31, 2010.

Strengths

• Assured net interest margin:  The Company’s cost plus based lease agreement with the MoR (Ministry of Railways) ensures a net interest margin. The Company enjoys a strategically important position in the Indian railway sector:  The Company is wholly owned by the Government of India. The Company is a public financial institution and a non-banking financial company providing fund based support for the development of the Indian Railways.
• Consistent track record of not having any non performing assets:  As of September 30, 2011, IRFC do not have any non performing assets. All its loans and receivables accrue from the MoR and other related entities like RVNL, Pipavav Railway and RailTel.
• Consistent financial performance: The Company has demonstrated consistent growth in its profitability. In addition, the Company has low establishment, overhead and administrative expenses and the Company’s operational efficiency is high, which results in increased profitability.
• Low cost of borrowings:  The Company’s costs of incremental borrowings were 7.62%, 7.70% and 8.98% in FY 2011, FY 2010 and FY 2009 respectively, which are relatively low with its peer group. 

Issue details:

Issuer	Indian Railway Finance Corporation Limited
Issue of Bonds	Secured, Redeemable, Non-Convertible bonds in the nature of debentures, having benefits under section 10(15)(iv)(h) of the Income Tax Act, 1961  Issue Size Rs. 3,000 crores with an option to retain oversubscription up to Rs.6,300 crores (Shelf-limit)
Issue Open Date	27th January, 2012
Issue Closing Date	10th February, 2012
Face Value	Rs.1,000 per Bond
Minimum Application	Rs. 10000 (10 Bonds) & in multiples of ` 5000 (5 Bonds)
Tenor/Redemption Date	10 Years and 15 Years from the deemed date of allotment
Ratings	“CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE & “ICRA AAA” by ICRA
Security	Charge on the movable assets comprising of rolling stock such as wagons, locomotives and coaches by way of first/ pari passu charge, present and future, as may be agreed between IRFC and the Trustee, pursuant to the terms of the Debenture Trust Deed
Trading	Compulsorily in dematerialized form
Issuance	In dematerialized form as well as physical form, at the option of Applicants.
Lead Managers	A. K. Capital Services Ltd., SBI Capital Markets Ltd. & ICICI Securities Ltd.
Depository	National Securities Depository Ltd. and Central Depository Services (India) Ltd
Trustee	Indian Bank
Allocation	Category I (QIB+ Corporate)- up to 45%; Category II (Individual above 5 Lakhs)- up to 25%; Category III (Individual below 5 Lakhs)- up to 30%
Listing	Proposed to be listed on BSE & NSE
Interest on Application Money used towards allotment of bonds	@ 8.00% p.a. on the amount for which Bonds are allotted to the Applicants subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, from the date of realization of the cheque(s)/ demand draft(s) or 3 (three) days from the date of banking of the application (being the date of submission of each application as duly acknowledged by the Bankers to the Issue) whichever is later, upto one day prior to the Deemed Date of Allotment
Interest on Application Money which is liable to be refunded	@ 4.00% p.a. on application money that is liable to be refunded to the Applicants in accordance with the provisions of the SEBI Debt Regulations, or other applicable statutory and/or regulatory requirements, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, from the date of realization of the cheque(s)/ demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of presentation of each application as acknowledged by the Bankers to the Issue) whichever is later, upto one day prior to the Deemed Date of Allotment. Provided that IRFC shall not be liable to pay any interest on monies liable to be refunded in case of (a) invalid applications or applications liable to be rejected, and/or (b) applications which are withdrawn by the applicant.PF / PIN / 28122011 / 770

Highlights of Tax Benefits

·         The income by way of interest on these Bonds is fully exempt from Income Tax and shall not form part of Total Income as per provisions under section 10 (15) (iv) (h) of IT Act.

·         There will be no deduction of tax at source from the interest, which accrues to the bondholders on these bonds irrespective of the amount of the interest or the status of the investors.

·         Wealth Tax is not levied on investment in Bonds under section 2(ea) of the Wealth-tax Act, 1957.

The issue

Options	I	II
Tenor	10 Years	15 Years
Face Value(Rs./Bond)	1,000.00	1,000.00
Minimum Application Size	10000 or 10 Bonds	10000 or 10 Bonds
In Multiples of	5000 or 5 Bonds	5000 or 5 Bonds
Coupon Rate (%)p.a.
Retail (Category III)	8.15%*	8.30%*
Others (Category I & II)	8.00%	8.10%
Interest Payment	Annually	Annually
Interest Payment Date	October 15, every year	October 15, every year
Redemption Date	10 Years from the Deemed Date of Allotment	15 Years from the Deemed Date of Allotment
Maturity Amount	Face Value + Interest Accrued at the Redemption Date	Face Value + Interest Accrued at the Redemption Date

*The coupon rates of 8.15% p.a. and 8.30% p.a. shall be payable only to the original allottees under Category III for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively and shall not be payable to the transferees in case the Bonds are transferred or sold by the original allottee. In such case, the transferees shall be entitled to receive coupon rates of 8.00% p.a. and 8.10% p.a. for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively. However, in case of any transfer by a permanently disabled allottee to their legal heir(s), the transferee shall continue to be entitled to receive interest at the coupon rate of 8.15% p.a. and 8.30% p.a., for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively. Where the Bonds are held in joint names and subsequently there is a change in the sequence of the names of the joint holders, the joint holders subsequent to such change in sequence of names, will be entitled to receive the interest at the coupon rate of 8.00% p.a. and 8.10% p.a., for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively. However, in case of change in name of any of the joint holders, such joint holders shall continue to be entitled to receive interest at the coupon rate of 8.15% p.a. and 8.30% p.a., for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively. In case of transmission of the Bond(s) in accordance with the Articles of Association of the Company, to the nominee in the event of demise of the Bondholder (single or joint holders) who was originally allotted Bonds under Category III, the new Bondholder (single or joint holders) shall continue to be entitled to receive interest at the coupon rate of 8.15% p.a. and 8.30% p.a., for the Tranche 1 and Series I Bonds and Tranche 1 and Series II Bonds respectively. For the purpose of classifying the investors into various categories, the applications will be consolidated on the basis of PAN. Consequent to such consolidation of applications, if an Applicant falls in any category other than Category III, such Applicant will not be entitled to receive the coupon rate of 8.15% p.a. and 8.30% p.a for Tranche 1 Series I Bonds and Tranche 1 Series II Bonds respectively

^ The Company shall allocate and allot Bond Series bearing longest maturity to all valid applications, wherein the Applicants have not indicated their choice of the relevant Bond Series in their Application Form.

Who Can Apply?

Category I:          QIB and Corporates

Category II:         Resident Indian individuals; Hindu Undivided Families through the Karta

Non Resident Indians on repatriation as well as non-repatriation basis (Above Rs.5 Lakhs)

Category III:       Resident Indian individuals; Hindu Undivided Families through the Karta

Non Resident Indians on repatriation as well as non-repatriation basis (Up to Rs.5 Lakhs)

How to Pay?

Cheque/DD’s to be Crossed A/C payee & drawn in favour of:

·         For Non NRI’s “IRFC Tax Free Bonds – Escrow Account – Tranche I”

·         For NRI’s "IRFC Tax Free Bonds – NRI Escrow Account – Tranche I"

·         For FII’s "IRFC Tax Free Bonds – FII Escrow Account – Tranche I"

IMPORTANT: Please read the Prospectus of this issue carefully before investing in the same.

Disclaimer: This note is for information purpose only and hence request you to read the prospectus for correct and accurate information before investing.