Bharat Bond ETF Tranche-II Public Offer Review

Published on Thursday, July 9, 2020 by Dilip Davda

• Bharat Bond ETFs launched for investments in 'AAA' category PSU Bonds.
• Tranche-I garnered Rs 12400 cr. against base offer size of Rs 7000 cr. in December 19.
• Tranche-II is aiming to mobilize Rs 14000 cr. for its two new series of 5 and 11 years.
• Issue opens for subscription on 14.07.20 and will close on 17.07.20

History of Bharat Bond ETF Tranche-I

Maiden issue of Bharat Bond ETF, India's first ever corporate bond exchange traded fund was launched in December 2019 by Edelweiss AMC. Bharat Bond ETF invests only in corporate bonds of AAA category PSUs. It may now include AA category of debt offers in its kitty soon, informed Dipam secretary Tuhin Kanta Pandey.

The bond ETF invests in constituents of the Nifty Bharat Bond Indices, consisting of AAA-rated public sector companies including EXIM Bank, HPCL, HUDCO, IRFC, NABARD, NHAI, NHPC, NTPC, PFC, NPCIL, Power Grid, REC and SIDBI.

Bharat Bond ETFs Tranche-I have two maturity periods i.e. 3 years (April 2023) and 10 years (April 2030). The ETF with a 3-year maturity follows the Nifty Bharat Bond Index-April 2023 and the one with a 10-year maturity follows the Nifty Bharat Bond Index-April 2030. Bharat Bond Funds of Funds is also being launched for investors who do not hold demat accounts.

1^st Tranche (maiden offer) was launched in December 2019. This offer was oversubscribed by 1.8 times and garnered Rs 12400 cr. against base size of Rs 7000 cr. This maiden offer witnessed some hiccups in the initial stage, but is now on track. As per data, more than 50000 retail investors participated in this issue.

Existing Bharat Bond ETF-April 2023 and April 2030, launched in December last year hold assets worth Rs 5,157 crore and Rs 8,585 crore respectively. Their respective returns since launch are 7.49% and 9.15%.

Bharat Bond ETF Tranche-II Public Offer

2^nd Tranche of Bharat Bond ETF with two new series is opening on 14.07.20 and mulls mobilizing Rs 14000 cr. It has base size of Rs 3000 cr. and green shoe option of Rs 11000 cr. This offer will close on 17.07.20.

These bonds have maturities of:

1. April 2025 (5 years)
2. April 2031 (11 years)

NSE Indices, in order to fulfill the requirement for the launches, launched two more indices:

1. Nifty Bharat Bond Index - April 2025
2. Nifty Bharat Bond Index - April 2031

Bharat Bond Tranche-2 Series Detail

1. Bharat Bond ETF (April 2025) aims to invest in bonds of PSUs like PFC, REC, Power Grid Corporation of India, National Housing Bank, IOC, National Bank for Agriculture & Rural Development, Hindustan Petroleum Corporation, NHPC, Export Import Bank of India, Indian Railway Finance Corporation, NTPC, Nuclear Power Corporation of India.

1. Bharat Bond ETF (April 2031) aims to invest in public sector companies like PFC, REC, Power Grid Corporation, National Highways Authority of India, Nuclear Power Corporation of India, Indian Railway Finance Corporation of India, Housing & Urban Development Corporation and NHPC.

The fund will be managed at a very low cost of maximum Re 1 for Rs 2,00,000 worth investment. The fund will charge 0.0005% per annum for assets up to Rs 10,000 crore. Bharat Bond ETF Tranche-II has kept 25% quota for retail investors and 75% for Retirement Trusts, QIBs, HNIs etc.

During the NFO period, retail investors can invest minimum Rs 1,000 and in multiples of Rs 1,000 thereafter, maximum up to Rs 2,00,000. Retirement Funds, QIBs, Non Institutional Investors can invest minimum of Rs 2,01,000 and in multiples of Rs 1,000 thereafter.

'The Bharat Bond ETF program continues to see healthy investor participation and good liquidity on the exchanges. The bid-ask spread (the difference between the buy and sell quotes) has stayed in a narrow range of 5 to 10 Bps and the daily average traded value in these ETFs has been between Rs 3 to 3.5 crore, making it one of the more liquid ETFs in India,' the fund house said in a release.

CONCLUSION

Investors who are looking for steady long term returns may consider investment in these bonds.

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. Above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).