Skip to main content

L&T Infrastructure bond

 

 

L&T Infra's bond issue seems to be a suitable investment for those who have still not invested in infra bonds for tax saving. But others can give it a miss



Issue details:

Company Name: LTIF
Issue Size: 200 cr
Face Value: 1000/ Bond
Issue Date: Oct 15-NOV 2


L&T Infrastructure Finance (LTIF) is coming out with an infrastructure bond to raise capital to fund its growth plans. The move comes on the back of LTIF being accorded the status of infrastructure finance company (IFC). While the issue terms are on similar lines to the earlier issue of IDFC, investors should consider investing only for the tax rebate attached to it.

BACKGROUND:

As per the current norms, IFCs can raise up to 25% of their gross disbursements in FY10 through bonds. While the company is not publicly listed, bonds would be tradable on the National Stock Exchange, post the lock-in period of five years.


   While a portion of the proceeds might be used to meet the issue expenses, majority of it will be used for boosting its infrastructure lending business. Earlier this month, IDFC also came out with a similar bond issue.


   With the government providing the tax shield for investments in infrastructure bonds over and above the maximum limit of Rs 1 lakh under Section 80C of the Income-Tax Act, other IFCs might also hit the market with similar issues.

BUSINESS:

Set up in 2007 as a nonbanking finance subsidiary of L&T, the company is primarily focused on providing debt finance to infrastructure projects. The company was given the IFC status in July 2010. It can thus access long-term funds to meet its growth plans. To add to this, the limit of bank financing and external commercial borrowings has also increased.


   The company has a diversified disbursement mix with the power sector forming almost 39% of its advances. Apart from this, the company also provides financing to companies in the telecom, roads, oil and gas, ports and other infrastructure sectors such as logistics, SEZs, etc.

FINANCIALS:

LTIF has grown at a fast pace since its inception. The company recorded a 60% compounded annual growth rate (CAGR) in its total income in the past three years. Total income for FY10 stood at Rs 4,504 crore. The surge can be attributed to the rise in loans or advances. Net loans of the company almost doubled in FY10 to Rs 4,255 crore. Last year, LTIF saw almost 50% hike in its interest costs. Even after this, the increase in net profit has been substantial. Net profit at the end of FY10 stood at Rs 110.8 crore, up 45% from the year-ago period. In fact, the company averaged 57% growth in net profit since FY08.


   Moreover, the company is adequately capitalised with its capital adequacy ratio being 22% vis-à-vis the 15% minimum required for an IFC. A strong capital base will help the company scale up operations at a fast pace.

RETURNS ON INVESTMENT:

The company is issuing the bond in four different series (see table). Though the bond seems to be giving a yield of 7.75% or 7.5%, based on the series chosen, the actual yield to investors will be higher accounting for the inherent tax advantage in the bond. To add to this, investors will have the option to redeem the principal from the company at the end of 5 or 7 years.


   Assume an investor in the tax bracket of 30.9%, who invests in the Series 3 of the bond issue and intends to exercise the buyback option at the end of five years.


   The yield on investment for such an investor could go as high as 13%, considering the tax benefit in the first year and annual tax-adjusted interest income.


   If not for the attached tax benefits, the yields and lock-in of these bonds mean investors would be better off investing in other avenues such as bank fixed deposits.

 

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

Good Loan

Why Is It A Good Loan?: Loans against gold are cheaper and better than personal loans as the former are available at lower interest rates. In contrast, the interest rates on personal loans are not standardised and can vary from bank to bank. Also, a personal loan depends on a host of factors including, the borrower's salary, profession and the purpose for which the loan is being taken.      For instance, the interest rate on a personal loan of 5 lakh falls in a wide range of 15-30%. But loans against gold are available for as low as 11%. Secured borrowing such as a loan against gold, investments or property is cheaper because it is backed by some assets, which command a good value at any point of time. If the borrower defaults on the loan, the banks can liquidate the assets to settle the loan account.    Being a secured loan, the risk of default and credit losses is significantly lower in this loan compared to other forms of loan for personal use. Given the lower risk, gold loa...

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...

Some tips for individual investors for investment planning

These days, the stock markets are quite volatile in nature with a bearish bias. Rallies do not last long in the markets and peaks of market rallies are reducing. The markets are hitting fresh lows in every fall. Many blue chip stocks are trading 50 percent lower than their high levels. Many stocks are currently trading at their year's low prices or all-time low prices. Many investors have lost their hard-earned money and many others are stuck with stocks that have corrected heavily in the last few weeks. Here are some tips for investors already invested in the stock markets: 1) Hold fundamentally strong options The domestic macroeconomic fundamentals are strong. The GDP growth rate is expected to slow down slightly from the nine percent last year to around 7 - 7.5 percent this year. This is still quite good and encouraging in comparison to other developed countries. The current market crash can be attributed largely to foreign institutional investors' ( FIIs ) outflows but...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now