NTPC Closes Tax-Free Bond Offer Early, 3.3x Subscribed

4 comments Written on December 6th, 2013 by
Categories: Bonds
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With a 330% subscription, NTPC decided to close it’s tax-free bond issue much earlier than the scheduled date of close (December 16). The original bond issue of Rs. 1,000 crore (with an additional 750 cr. if there was demand). The bond is on “first-come-first-serve” basis based on which day your application goes in. So obviously it makes no sense to accept any more bids.

The bonds yielded upto 8.91% for retail investors (20 year term) and a lower bound yield of 8.41% for a 10-year bond held by corporates.

The demand for tax-free bonds has skyrocketed as returns to investors is very good versus any other sort of fixed income instrument, if your tax bracket is 20% or more. These bonds have

However, these yields are available on many other tax free bonds, most of which are illiquid and have large bid-ask spreads. Look at a 9 year HUDCO bond:

image

These bonds have seen a lot of interest and volume in the last few years. The biggest risk here is that interest rates go up, as they have in the last year or so. Even then you will get the yield you saw on the purchase date, if you hold to maturity - the default risk on these bonds is fairly low.

Note: We’re building a more deeper post for Capital Mind Premium about such bonds with yield graphs, coming soon.

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The man behind Capital Mind. Deepak is a co-founder at MarketVision, a financial knowledge company. Deepak also provides data research and consulting services, and now lives in Bangalore. Connect with him at deepakshenoy@gmail.com.

4 comments “NTPC Closes Tax-Free Bond Offer Early, 3.3x Subscribed”

Hi Deepak,
For a retail investor looking to sell for Capital Gains when the Interest Rates go down, which of the 3 terms provide better liquidity -

1. 10 yr
2. 15 yr
3. 20 yr

Deepak Sir

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How many bonds I should have got? I applied for 100 but got 14 only.

I think they had to do a proportional allotment…


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