L&T Infrastructure Bonds – How does it compare with IDFC Bonds

Yesterday, L&T Infrastructure announced public issue of its infrastructure bonds, investment in which will be eligible for tax deduction under section 80CCF of the Income Tax Act.  The issue size at Rs. 200 Crores with an option to retain oversubscription of Rs. 500 crores is smaller than IDFC Infrastructure Bond Issue size of Rs. 3400 crores.

Terms of the issue are as follows:

• Issue Open Date : October 15, 2010
• Issue Close Date : November 2, 2010
• Listing on NSE
• Credit Rating of CARE AA+ by CARE and LAA+ by ICRA
• Basis of Allotment : On first come first serve basis
• Tenure : 10 years

The bonds are issued in four series as given below:

Series	Interest Rate	Interest Payment	Buy Back Option	Tax Adjusted Yield*
I	7.75%	Annual	After 7 years	15.23%
II	7.75%	Cumulative	After 7 years	13.59%
III	7.50%	Annual	After 5 years	17.20%
IV	7.50%	Cumulative	After 5 years	15.75%

HTML Table

* Tax adjusted yield is assuming buyback at the end of the specified period

Comparison with IDFC Bond:

The yields for Series 3 and Series 4 are same as Series 3 and Series 4 of IDFC bond issue.  Investor will in indifferent in investing in either of these issues. However, Series 1 and 2 of L&T Infrastructure issue has the buy back option after a period of 7 years and is ideal for investors looking for investing beyond 5 years but less than 10 years horizon.  For those looking for investing for 10 years, IDFC bond issue is preferred since the coupon rate is 8%.