L&T infra bonds: Good long term investment opportunity

Nirmal Bang has come out with its report on infra bonds issue of L&T Infrastructure Finance Company. According to the research firm, the tax saving bond issue from L&T Infra is a good long term investment opportunity as well as a tax saving instrument for investors.

L&T Infra bonds will have a lock-in period of five years. Post five years, these bonds will be traded on BSE. At the same time, the company can also exercise the buyback option. The buyback option can be exercised both at the end of five years and seven years. Bond investors will get the income tax benefits under 80CCF wherein a maximum investment of Rs 20,000 would fetch tax exemptions to the tune of Rs 2,060 (10.3% of 20,000) - minimum and 6,180 (30.9% of 20,000) - maximum. L&T Infrastructure Finance is looking to raise at least Rs 300 crore by way of issuing the second tranche of tax-saving bonds in the current financial year. The company has already collected Rs 530 crs in the first tranche in November 2011. The interest rates are lower than the previous issue as the coupon rates have to be at par with the yield on benchmark securities, and the decrease is in sync with the yield movement over the last month. Recommendation: We believe that the tax saving bond issue from L&T Infra is a good long term investment opportunity as well as a tax saving instrument for investors. As the interest rates are at the peak and the rates are expected to go down this is the best time to enter in the bond market and lock in investments at a higher rate. Key Concerns

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