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Power Finance Corporation Jan 2021 NCD Tranche I review (Apply)

Power Finance Corporation Limited Logo
  • This is a debt offer from PSU after long, and the maiden offer from PFC..
  • The issue is rated AAA/Stable by CARE, CRISIL and ICRA.
  • Coupon rates ranging from 4.65% to 7.15%
  • Investors may consider investment for safe and steady returns for medium to long term.

ABOUT COMPANY

Power Finance Corporation Ltd. (popularly known as PFC) is one of the leading financial institutions in India, focused on the power sector. The Company plays a strategic role in the initiatives of the GoI (Government of India) for the development of the power sector in India and works with GoI agencies, state governments, power sector utilities, other power sector intermediaries and private sector clients for the development and implementation of policies and for structural and procedural reforms in the power sector in India. In addition, PFC is involved in various GoI programs relating to the power sector, including acting as the nodal agency for the UMPP program, the IPDS/R-APDRP (now subsumed under the IPDS) and funding DISCOMs under the COVID 19 liquidity package. PFC enjoys 'Navratna' status since 2007.

The Company provides a comprehensive range of financial products and other services to clients in the power sector, including:

  • services ranging from project conceptualization to the post-commissioning stage, including generation (conventional and renewable), transmission and distribution projects, and related renovation and modernization projects;
  • various forms of fund-based assistance, including long-term project finance, short-term loans, buyers' lines of credit, underwriting of debt and debt refinancing schemes;
  • Various forms of non-fund based assistance including default payment guarantees, credit enhancement guarantees and letters of comfort; and
  • Various fee-based technical advisory and consultancy services for power sector projects through our wholly owned subsidiary PFC Consulting Limited.

The focus areas of the Company have been strategically expanded to include projects that represent forward and backward linkages to core power sector projects, including procurement of capital equipment for the power sector, fuel sources for power generation projects and related infrastructure development. It also funds power trading initiatives.

As of September 30, 2020, it has incorporated 19 wholly-owned SPVs as subsidiaries or deemed subsidiaries for these projects, out of which four SPVs were transferred to the successful bidders. These SPVs have been established to undertake preliminary site investigation activities necessary for conducting the bidding process for these projects and also to undertake preliminary studies and obtain necessary linkages, clearances, land and approvals, including for water, land and power sale arrangements, prior to transfer of the projects to successful bidders. The objective is to transfer these SPVs to successful bidders, through a tariff based international competitive bidding process, who will then implement these projects, on payment of development costs incurred by each SPV.

ISSUE DETAILS

For the purpose of onward lending, financing / refinancing the existing indebtedness of Company, and/or debt servicing (payment of interest and/or repayment / prepayment of interest and principal of existing borrowings of Company) (75% of the net proceeds) and general corporate purpose needs (25% of the net proceeds), PFC is coming out with a issue of secured, redeemable non-secured debentures (NCDs) having a face value of Rs. 1000 each. The company has shelf limit of Rs. 10000 cr. and out of which under Tranche I it is offering NCDs worth Rs. 450 cr. with a green shoe option to retain oversubscription to the extent of Rs. 4500 cr. Thus the overall Tranche I issue size is Rs. 5000 crore. Minimum application is to be made for 10 NCDs (i.e. Rs. 10000) and in multiple of 1 NCD (Rs. 1000) thereon, thereafter. The issue opens for subscription on January 15, 2021 and will close on or before January 29, 2021. Post allotment, NCDs will be listed only on BSE. Allotment will be done on 'First Come - First Served' basis. PFC will be spending around Rs. 25.64 cr. for Rs. 5000 cr. Tranche I issue process.

The issue is jointly lead managed by Trust Investment Advisors Pvt. Ltd., A K Capital Services Ltd., Edelweiss Financial Services Ltd. and JM Financial Ltd. K Fin Technologies Pvt. Ltd. is the registrar to the issue while Beacon Trusteeship Ltd. is the debenture trustee.

Power Finance Corporation NCD Coupon Rates

Tenure 3 Years 5 Years 10 Years 10 Years 10 Years 15 Years 15 Years
Nature Secured
Series I II III IV V VI VII
Frequency of Interest Payment Annual Annual Quarterly Annual Annual Quarterly Annual
Minimum Application 10 NCDs (₹10,000) (across all options of NCDs)
In multiples, of 1 NCD after the minimum application
Face Value of NCDs (₹/NCD) ₹1,000
Issue Price (₹/NCD) ₹1,000
Coupon for Category I and II 4.65% 5.65% 6.63% 6.80% Benchmark
FIMMDA
10Yr G-Sec
(Annualised)
+ 55 BPS
6.78% 6.95%
Coupon for Category III and IV 4.80% 5.80% 6.82% 7.00% Benchmark
FIMMDA
10Yr G-Sec
(Annualised)
+ 80 BPS
6.97% 7.15%
Redemption Amount (Rs/NCD) 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Redemption Date 3 Years 5 Years 10 Years 10 Years 10 Years 15 Years 15 Years
Effective Yield (% per annum) for Category I and II 4.65% 5.65% 6.79% 6.80% - 6.95% 6.95%
Effective Yield (% per annum) for Category III and IV 4.80% 5.80% 6.99% 7.00% - 7.15% 7.15%
Put and Call Option Not Applicable

This issue is rated 'CARE/AAA Stable' by Care Ratings Ltd., 'CRISIL/AAA Stable' by CRISIL Ltd. and 'ICRA/AAA Stable' by ICRA Ltd. Such ratings considered having the highest degree of safety regarding timely servicing of financial obligations and such instruments carry lowest credit risk. The ratings provided by CARE, ICRA and CRISIL may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold the NCDs and investors should take their own decisions.

PFC is offering coupon rates ranging from 4.65% to 7.15% with quarterly or annual pay out of interests to investors. The tenor of the issue is for 3 years, 5 years, 10 years and 15 years.

FINANCIAL PERFORMANCE

On financial performance front, on a consolidated basis PFC has posted total income/net profits of Rs. 54153.86 cr. / Rs. 12640.27 cr. (FY19), Rs. 62275.36 cr. / Rs. 9477.25 cr. (FY20). For the first half of FY21, it has earned net profit of Rs. 7846.97 cr. on total income of Rs. 35103.65 cr. Thus despite pandemic, it has continued to mark growth in its operations.

Its debt equity ratio as on September 30, 2020 of 6.57 will stand enhanced to 6.77 post this issue.


Conclusion / Investment Strategy

Well, there is a debate in the market about the interest rate of this PSU with AAA rating as recent NCD issue from Edelweiss Financial Services Ltd. with similar rating offered lucrative coupon rates ranging from 9.35% to 9.95%. Based on status of the corporate and the recent bond rates, this offer from PFC may be considered for investment by investors looking at safe and steady returns for medium to long term. (Subscribe).

Reviewer recommends Subscribing to the issue.

Review By Dilip Davda on Jan 13, 2021

Review Author

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 prior to 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 are subject to unpredictable market related risks. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.

(SEBI registered Research Analyst-Mumbai).


About Dilip Davda

Dilip Davda, a freelance journalist

Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.

Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.

Email: dilip_davda@rediffmail.com

The Power Finance Corp NCD January 2021 Analysis helps you to understand about the company, offer detail, valuation, capital structure and financial performance. Our SEBI registered NCD Analysts tells you if Power Finance Corp NCD January 2021 worth investing. The Power Finance Corp NCD January 2021 Note sets the NCD expectations in systematic way which tells you if Power Finance Corp NCD January 2021 good to buy (good or bad / yes or no). The NCD Forecast tells you weather to invest in Power Finance Corp NCD January 2021 by providing NCD recommendations i.e. subscribe, avoid and neutral.