IRFC Tax Free Bonds Product Note

Key Highlights
• A wholly owned Public Financial Institution, incorporated in 1986 by Ministry of
Railways.
• Highest credit rating of “CRISIL AAA/Stable” by CRISIL, “CARE AAA” by CARE and “Fitch
AAA (ind)” by FITCH.
• Listing on BSE and NSE.
• Tax Free Secured Redeemable NCD with coupon rate of 8.15% for 10 years and 8.30%
for 15 year for Retail Investors and 8% for 10 years and 8.10% for 15 years for Other
Investors.
• Investors, including NRI’s have the option of applying in the physical option, however
trading with only will be in demat form.
• Allocation of 45% in Category I, 25% in Category II and 30% in Category III.

Issue Size (Rs in Crs)
Tax Free Secured Redeemable Non-convertible Bonds aggregating Rs 3,000 Crores with an
option to retain an oversubscription upto the Shelf Limit (i.e. Rs 6300 Crores).

Issue Program*

• Issue Opening Date- 27th January , 2012
• Issue Closing Date – 10th February, 2012*
• Deemed Date of Allotment - Deemed Date of Allotment shall be the date on which the Directors of the Company or any committee thereof approves the allotment of the Bonds for each Tranche Issue.

*The Issue shall remain open for subscription for a minimum of 3 days or such extended period upto a maximum period of 30 days from the date of opening of the Issue. In case of early closure, IRFC shall ensure that public notice of such early closure is published on or before the day of such early date of closure through advertisement/s in a leading national daily newspaper.

Terms of Issue


Company Profile
Indian Railway Finance Corporation Limited, a wholly owned Public Financial Institution was incorporated on 12th December, 1986 by the Ministry of Railways, for the purpose of raising the necessary resources for meeting the developmental needs of Indian Railways. IRFC began its operations after obtaining the certificate of Commencement of Business on 23rd December, 1986. The development of IRFC's business is dependant on the Ministry of Railways' strategy concerning the growth of Indian Railways. Its principal business is borrowing from the commercial markets to finance the acquisitions of the infrastructure assets which are then in turn leased to Indian Railways. IRFC is registered as a Non- Banking Finance Company fully owned by the Government of India under section 45 IA – with RBI, but IRFC does not need to comply with the Reserve Bank of India's regulatory requirements on asset classification, income recognition, provisioning, and prudential exposure norms, which restrict a non banking finance Company's maximum exposure to a sector or an entity.

Credit Rationale

Strengths
The ratings factor in IRFC’s sovereign ownership, its strategic importance for Ministry of Railways (MoR) as a sole arranger of lease finance and its stable earnings supported by a favorable lease agreement with MoR and low credit risk profile. The highest-credit-quality rating also factors in the adequate capitalization and comfortable liquidity profile of the corporation. IRFC is expected to maintain a dominant share in the MoR’s increasing requirement for funding rolling stock on the strength of its ability to mobilize funds at competitive rates driven by its quasi-sovereign franchise. The corporation is expected to report stable earnings in future on the strength of a favorable lease agreement with MoR, which provides it with a positive interest spread and protects it against liquidity, interest rate and exchange rate related risks.

Weakness
IRFC has average earnings profile. The Company’s profitability is, however, maintained by way of a mark-up over its borrowing cost. The outlook may be revised to ‘Negative’ if there is any reduction in its strategic importance to, or if there is any significant decline in support from, Government of India.

Financial Performance

Profit Details (Consolidated)



Allotments in case of oversubscription
In case of an oversubscription, allotments to the maximum extent, as possible, will be made on a first-come first-serve basis and thereafter on proportionate basis, i.e. full allotment of Bonds to the applicants on a first come first basis up to the date falling 1 (one) day prior to the date of oversubscription and proportionate allotment of Bonds to the applicants on the date of oversubscription (based on the date of submission of each application to the Bankers to the Issue, in each Portion).

Who Can Apply

Category I:

• Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks, which are authorised to invest in the Bonds;
• Provident Funds, Pension Funds, Superannuation Funds and Gratuity Fund, which are authorised to invest in the Bonds, Insurance companies registered with the IRDA;
• National Investment Fund, Mutual Funds, Foreign Institutional Investors (including sub-accounts)
• Companies; bodies corporate and societies registered under the applicable laws in India and authorised to invest in the Bonds, Public/private charitable/religious trusts which are authorised to invest in the Bonds, Scientific and/or industrial research organisation, which are authorised to invest in the Bonds;
• Partnership firms in the name of the partners, Limited liability partnerships formed and registered under the provisions of the Limited Liability Partnership Act, 2008 (No. 6 of 2009)

Category II:
The following investors applying for an amount aggregating to above Rs.5 lakhs across all
Series in each tranche

• Resident Indian individuals;
• Hindu Undivided Families through the Karta and
• Non Resident Indians on repatriation as well as non-repatriation basis.

Category III*:
The following investors applying for an amount aggregating to upto and including Rs.5 lakhs across all Series in each tranche

• Resident Indian individuals;
• Hindu Undivided Families through the Karta and
• Non Resident Indians on repatriation as well as non-repatriation basis.

Applications cannot be made by:

• Minors without a guardian name;
• Foreign nationals;
• Persons resident outside India other than NRIs ;
• Overseas Corporate Bodies

Interest on Application Money which is refunded
The Company will pay interest on application money which is liable to be refunded to the applicants in accordance with the provisions of the SEBI Debt Regulations, or other applicable statutory and/or regulatory requirements, subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, as applicable, from the date of realization of the cheque (s)/demand draft(s) or 3 (three) days from the date of receipt of the application (being the date of presentation of each application as acknowledged by the Bankers to the Issue) whichever is later upto one day prior to the Deemed Date of Allotment, at the rate of 4% per annum. Such interest shall be paid along with the monies liable to be refunded.

Interest on application Money, which are used towards allotment of Bonds
The company shall pay interest on the amount for which Bonds are allotted to the Applicants subject to deduction of income tax under the provisions of the Income Tax Act, 1961, as amended, from the date of realization of the cheque (s)/demand draft(s) or 3 (three) days from the date of banking of the application (being the date of submission of each application as duly acknowledged by the Bankers to the Issue) whichever is later upto one day prior to the Deemed Date of Allotment, at the rate of 8% per annum. Such interest will be paid through direct credit of interest to the account of the applicants. Alternatively, the interest warrant will be dispatched along with the Letter(s) of Allotment at the sole risk of the Applicant, to the sole/first Applicant.

Taxation
Under section 2 (29A) of the I.T. Act, read with section 2 (42A) of the I.T. Act, a listed Bond is treated as a long term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer.
Under section 112 of the I.T. Act, capital gains arising on the transfer of long term capital assets being listed securities are subject to tax at the rate of 20% of capital gains calculated after reducing indexed cost of acquisition or 10% of capital gains without indexation of the cost of acquisition. The capital gains will be computed by deducting expenditure incurred in connection with such transfer and cost of acquisition/indexed cost of acquisition of the bonds from the sale consideration.

Tax Benefits
These bonds carry a tax free status as per Notification No. 52/2011 F.No. 178/56/2011-(ITA.I) issued by Government of India, Ministry of Finance, Department of Revenue, (Central Board of Direct Taxes) on 23rd September, 2011. The same is published in the Gazette of India, Extraordinary, Part II, Section 3, Sub section (ii). The interest on application money will taxed as per the prevailing income tax rates. However the bond holders are advised to also consult their own tax advisor on the tax implications of the ownership and sale of bonds, and income arising thereof. Further, the benefit under Section 10(15)(iv)(h) of the Income Tax Act, 1961 (43 of 1961), shall be available only to Bondholder(s) who have registered their name(s) and holdings with IRFC.

Disclaimer

This document has been prepared for your information only. In rendering this information, we assumed and relied upon, without independent verification, the accuracy and completeness of all information that was publicly available to us. The information has been obtained from the sources we believe to be reliable as to the accuracy or completeness. This should not be construed as an offer to sell or buy the securities and the information contained herein is meant for the recipient only and is not for public distribution. This information is given in good faith and we make no representations or warranties, express or implied as to the accuracy or completeness of the information and shall have no liability to you or your representatives resulting from use of this information. We shall not be liable for any direct or indirect losses arising from the use thereof and accept no responsibility for statements made otherwise issued or any other source of information received by you and you would be doing so at your own risk. The investment as mentioned in the document may not be suitable for all investors. Investors may take their own decisions based on their specific investment objectives and financial position and using such independent advisors,
as they believe necessary. For Risk Factor, please refer to the Draft Shelf Prospectus issued
by the company dated 10th January, 2012.

For further details please contact us on the below mentioned numbers:

022 - 40156688 / 40156690 / 40156692

Thanks,

Gaurav Agarwal

Head Dealer

DENIP Consultants Pvt Ltd