Section 80CCF- India Infrastructure Finance Company Ltd (IIFCL)- Long Term Infrastructure Bonds

The issue proceeds are proposed to be used for the company’s infrastructure lending activities, Chairman and Managing Director of the company S K Goel told reporters here today. The issue which opened for subscription on February 4 would close on March 4. The Tax Saving Bond which will have five-year locking period has four series with rate of interest ranging between 8.15 per cent and 8.30 per cent, Godel said, adding that the face value of the Bond is Rs 1,000.

The bonds are proposed to be listed on the Bombay Stock Exchange.

The bonds have been assigned a credit rating of “AAA/ Stable” by CRISIL and “CARE AAA” by CARE indicating ‘Highest Safety’ with regard to timely payment of interest and repayment of principal amount of the bonds.

Bonds issued by the company will be secured by an exclusive first charge on the receivables of the company, with an asset cover of one time of the total outstanding amount of Bonds, Goel said.

Company profile

IIFCL is a wholly-owned Government company providing financial assistance to long-term infrastructure projects. As on 30 Sept 2010; 105 of the 124 projects for which IIFCL has sanctioned finances. As on March 31, 2010 and September 30, 2010, it had no non-performing advances. The GoI has identified infrastructure development as a key priority and the Eleventh 5 Year Plan (FY 2008-2012) and envisage investments of US$ 514 bn. in the Indian infrastructure sector. Thus, IIFCL is expected to play a prominent role in the infrastructure finance space in India going forward.

Salient features of the bond issue (Tranche I)

First Bond Issue by a Government of India enterprise with tax benefits under Sec 80CCF of the Income Tax Act, 1961.
Credit rating agency CRISIL has rated the Bonds under this offer as “AAA/Stable” and CARE has rated the bonds “CARE AAA” with stable outlook, indicating highest safety.
These bonds will be issued only to Resident Indian Individuals (Major) and HUF.
Available in 4 Series with diverse maturity; Series I & II having maturity of 10 years and Series III & IV having maturity of 15 years.
The bonds are fully secured with first charge over receivables of the Company. The security cover is 1.0 times of the outstanding Bonds at any point in time.
The Bonds bear an attractive combination of coupon rate 8.15% p.a. (Series I and II) and 8.30% p.a. (Series III and IV).
All the 4 Bond Series provide buyback option to investors.
Bonds can be held in DEMAT form or physical form as per investor preference. The bonds will be listed on BSE and can be traded post 5 year lock – in period.
As per the current provisions of the I.T. Act, for bonds held in DEMAT form; no TDS will be deducted on interest on Bonds. If bonds are held in physical form, no tax may be withheld if such interest does not exceed Rs 2,500 in a financial year. However, such interest is taxable income in the hands of Bondholders.
Investors can mortgage or pledge these bonds to avail loans after the lock-in period.
Under Section 80 CCF of the I.T. Act, an investor in such infrastructure bonds will be entitled to tax deduction of investments of up to Rs 20,000 over and above the Rs 1,00,000 deduction available under section 80C, 80CCC & 80CCD read with section 80CCE.

Issue summary

Issue opens: 04th February 2011
Issue closes: 04th March 2011

Issue Structure:

Maturity: The Bonds with a maturity of 10 years will be issued in Series I and II whereas Series III and IV will have a maturity of 15 years each.
Face Value: Each Bond has face value of Rs 5,000 each.
Minimum application: Rs 10,000 or 2 bonds. The bonds can be of the same series or 2 bonds across different series.
Lock in: 5 years from the date of allotment.
Buyback facility: Available for all the Bond Series.

Bond Issue Profile: (First Tranche)

Options	Series I	Series II	Series III	Series IV
Interest Payment	Annual	Cumulative	Annual	Cumulative
Face Value (Rs / Bond)	Rs.1,000/-	Rs.1,000/-	Rs.1,000/-	Rs.1,000/-
Minimum Application	5 Bonds and in multiples of 1 bond thereafter
Coupon (%) p.a.	8.15%	8.15%	8.30%	8.30%
Maturity	10 years	10 years	15 years	15 years
Redemption Amount per bond	Rs 1,000 per Bond + accrued interest *	Rs 2,189	Rs 1,000 per Bond + accrued interest *	Rs 3,307
Buy back Facility	Yes	Yes	Yes	Yes
Buy back date	5 years	5 years	7 years	7 years
Buy back intimation period	The period beginning not more than 9 months prior to the Buyback Date and ending not later than 6 months prior to the Buyback Date	The period beginning not more than 9 months prior to the Buyback Date and ending not later than 6 months prior to the Buyback Date	The period beginning not more than 9 months prior to the Buyback Date and ending not later than 6 months prior to the Buyback Date	The period beginning not more than 9 months prior to the Buyback Date and ending not later than 6 months prior to the Buyback Date
Buy back Amount (Rs)	Rs 1,000 per Bond + accrued interest *	Rs 1,480 per Bond	Rs 1,000 per Bond + accrued interest *	Rs 1,747 per bond

l Calculated from the last interest payment date to the Buyback Date

Investors to benefit from 80 CCF Benefits:

The Bonds are classified as “long term infrastructure bonds” and are being issued in terms of section 80 CCF of the Income Tax Act.
Bonds offer an additional window of tax deduction of investments of up to Rs 20,000.
The deduction is over and above the Rs 1,00,000 deduction available under section 80C, 80CCC & 80CCD read with section 80CCE
It helps in intermediating the retail investor’s savings into infrastructure sector directly.
In the event that any applicant applies for the bonds in excess of Rs 20,000 p.a., the aforestated tax benefit shall be available to such applicant only to the extent of Rs 20,000 p.a.