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Power Finance Corporation Limited NCD's Messages

1 Comments

1. Tanuj Goyal

| Link|July 20, 2023 10:33:09 PMReply

Have done some research - let me know what you think?

A quick back of the hand calculation of PFC NCD opening tmrw

Specs - 7.5% coupon payable annually - 3 tranches maturing 3/10/15 years

No comparable psu AAA rated bond having tradable liquidity presently (most ntpc / irfc / PFC bonds are either tax free bonds or of a widely different coupon rate or maturity)

A comparison with very liquid gsec 2033 maturity 7.26 % coupon rate having market price of 104.10 results in a yield to maturity (YTM) of 6.70%

In previous AAA rated PSU bonds issued since 2019 onwards, I have observed that their YTM was either equal to or slightly less than Gsec!! (This was something new because I had this feeling that the YTM would be higher due to risk premium), but it was comparable due to high demand for good quality paper.

Even if we assign a risk premium of 30 bps and evaluate at a YTM of 7.0% , the price of 1000 and coupon of 7.50% gives a price of 103.5 for 10 year ncd and appx 104.85 for 15 year paper.

In my opinion, at a conservative estimate it can deliver listing gains of 2.5 - 3.0%

Although Two risk factors are there - liquidity of the paper on listing day and any adverse interest rate movement from the opening of issue till listing date, the second factor has a bleak chance of happening but still!

The good thing is that un like hot IPOs, one has a confirmed chance of allocation if application is made on first or second day (it's a first come first serve NCD)

So assuming that you put ₹1 crore in the NCD and the money is blocked for 10 days, OD against FDr of 8% interest cost , the cost of capital is ₹22500 , and at a 2% listing gain, the expected return would be ₹200000-22500-2500(misc / brokerage etc ) would be ₹175,000

I have decided to give it a shot, I see a limited downside potential, but liquidity scenario and may be selling by individuals on listing day for short term gains may spoil the party

Investing presents new opportunities everyday, and experimenting with a limited risk can open new frontiers so let's see what PFC NCD has in store for us!

(This write up is personal opinion and is by no means a recommendation to invest in this instrument)

Tanuj Goyal

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1.1. NealCaffery

| Link|July 21, 2023 1:28:37 PM

@Tanuj Goyal Great analysis. I have not seen any NCD selling at this much premium after listing (1025 - 1030 in this case). Also the Base+Greenshoe size is very big : 500+4500 Crores, so I feel there will be very less or No buyers as everybody who applies it will get the allotment. Anyway lets be hopeful for 2.5-3% Listing gains.

BTW, how to apply for this NCD in HNI online as I don't see this in ASBA of many banks? Only see retail option using UPI on certain portals like Goldenpi or paper based application form for HNIs but no Online option.

1.2. Nothing New

| Link|July 21, 2023 1:48:59 PM

Check out PFC N1 (CMP 1260), PFC N2 (CMP 1113), PFC N3 (CMP 1240). Depending on the tenure and the coupon rate all are trading at a premium to adjust the yield to close to 6.8 %

I would apply for a 3 year NCD as there is not much difference between 10, 15 and 3 year coupn rate and 7.55 % yield for a 3 year government NCD shan't sustain for long.

1.3. Seth

| Link|July 21, 2023 7:11:52 PM

Hi @Tanuj
Can we sell on listing via groww or zerodha demat?
And it's already subscribed so now allotment would be proportionate or not?
Is there any chance if I apply now?

1.4. ipo stonks

| Link|July 22, 2023 6:22:58 PM

@Tanuja Goyal
Buddy your assumptions are too optimistic
1. When you apply for 1cr worth of bonds you won’t get it all.
2. Listing of 2.5%-3% is tooooo optimistic.

Let’s say you apply for 1cr bonds you get some 40L worth of bonds alloted (4000 bonds). Listing gain will be Rs 2-3.
Meaning a gain of 12000Rs.
And cost of 1cr @9% for 8 days will be ~Rs. 20,000. Brokerage paid will be some 8000Rs.
It is a loss.

BUT
What you can do is have a broker who shares his commission with you when you apply through him.
Generally they pay 0.5-0.75% as commission.
On 40L worth of alloted shares you would’ve got Rs. 30,000.

In short net you’ll get Rs. 15,000 from this whole deal.

1.5. Tanuj Goyal

| Link|July 22, 2023 6:34:02 PM

@ipo stonks - 2% is 1020 not 1002, although the whole exercise of pricing and valuating it has failed because there was a major discrepancy in the Market price of Gsec 7.26% 2033 maturity. My broker gave me a rate of 104.2 which translates into 6.70% YTM whereas in institutional market which is more liquid and an apt represtation, the rate is 101.20 , YTM 7.08% so the whole thesis of investing becomes pointless from. Listing gains perspective!

Reg your second point of allotment since it's a first come First serve basis of allotment, how come you are assuming 40% allotment when you are applying on the first day itself? Just want to know if there is a basis of allotment which I am Missing.

Thanks for a healthy discussion point

1.6. ipo stonks

| Link|July 24, 2023 3:29:34 PM

@Tanuj Goyal
I know 2% is 1020, but I am saying it’ll give listing gains of only 2-3Rs i.e. 0.2%-0.3%.

You have good knowledge about the yields their comparison to Gsec.

Okay, so when the issue is oversubscribed on the first day itself, then all applicants will get proportionate allotment (because they all applied on the first day).
First come first serve is not application wise but day wise.

I have earlier applied in National Highways Infrastructure Trust in October 2022, at that time I understood the “first come first serve” allotment concept in NCD’s.

Absolutely good to have people discussing on the NCD issues.

1.7. Vikrant Agarwal

| Link|July 25, 2023 5:39:10 PM

@NealCaffery Kotak bank gives you the option when applying from the website, not from the app. This could be the case with other banks too.