PFC Tax free bonds-Lock in high tax free coupon:ICICIdirect

ICICIdirect.com's report on PFC Tax Free BondPower Finance Corporation (PFC) has come out with a public issue of tax free bonds to raise up to Rs 700 crore. PFC is a Navratna company of the Government of India (GoI) and a leading power sector public financial institution. It is the second tax free bond issue in the current financial year after NTPC. For retail investors, the annualised coupon offered is 7.36%, 7.52% and 7.60% for tenure of 10, 15 and 20 years, respectively. Interest received on these bonds is fully exempt from income tax. The pre-tax yield on the bond for the highest tax bracket investors, therefore, works out to 11.00% for 20 years, significantly higher than 8-9% on bank fixed deposits and other stable fixed income instruments. Crisil, CARE and Icra have assigned AAA rating to the bond issue, implying a stable cash flow and very low credit default risk. The increased focus of the government on the power space augurs well for the sector and the company, on the whole. The secured nature of the bond makes it less risky making it an attractive fixed income investment option.Analysis"PFC tax free bonds will be issued at a coupon rate of 7.36%, 7.52% and 7.60% for 10, 15 and 20 years, respectively, for a retail investor. For other categories that include, corporates, HNIs and QIBs, the coupons are at 7.11%, 7.27% and 7.35%, respectively. Also, 40% of the issue i.e. Rs 280 crore has been reserved for allocation to the retail category. The remaining issue will be for non-retail investors including QIB (10%), corporates (25%) and high networth Indians (25%)", says ICICIdirect.com research report.

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