INVESTOR PRESENTATIONTAX FREE BONDS

2012-13

TAX FREE BONDS 2012 - 13TAX FREE BONDS 2012 - 13

HISTORYHISTORY

AGENDAAGENDA

MACROECONOMIC OUTLOOKMACROECONOMIC OUTLOOK

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HISTORY

• The Central Government introduced Tax Free Bonds in FY 2011-12 worth Rs.30,000 crs.

• Subsequently, 5 Public Sector Enterprises completed Public Issues and Private Placements to raise resources under these amounts with bonds in 10 and 15 year tenors.

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National Highway Authority of India (NHAI) 10,000 Cr.

Power Finance Corporation (PFC) 4,033 Cr.

Indian Railway Finance Corporation (IRFC) 6,300 Cr.

Housing & Urban Development Corporation (HUDCO) 4,685 Cr.

Rural Electrification Corporation (REC) 3,000 Cr.

• The interest income is taxable/exempt. No TDS deducted at time of interest payment

• Tenure: Choice of 10 years and 15 years• Proposed to be listed on NSE and BSE• No lock-in period • Secured issue• Either in Demat or Physical form

FEATURES

• The bonds are issued by good rated central PSU’s and are considered very safe.

• Interest earned is Tax exempt• No cap on amount of investment eligible for

tax benefits• Can be sold in secondary market without

any lock-in period• Listed securities

ADVANTAGES

INTRODUCTION

FY 2011-12 ISSUERS

HISTORY

Institutional HNI Retail Overall

Issue Size (in Rs. Cr)

Times oversubscribed

Issue Size (in Rs. Cr)

Times oversubscribed

Issue Size (in Rs. Cr)

Times oversubscribed

Issue Size (in Rs. Cr)

Times oversubscribed

NHAI 4,000 4.04 3,000 2.40 3,000 0.52 10,000 2.49

PFC 2,017 3.51 1,008 1.78 1,008 1.06 4,033 2.47

IRFC 2,821 4.60 1,567 1.92 1,881 1.01 6,269 2.85

HUDCO 2,108 1.17 1,171 1.08 1,405 0.76 4,685 1.02

REC 1,500 1.63 750 2.12 750 0.79 3,000 1.54

YIELD AND SUBSCRIPTION PATTERNS

Subscription pattern last year

Effective Yield pattern last year

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• All the five issues of tax free bonds are trading at a premium on the exchanges• A portfolio of with equal allocation in all 5 bonds would have yielded 4.5% in price gain• The following table shows the absolute total post tax gains (Tax free coupon, accrued interest and Capital Gains)

for the different bonds

NHAI PFC IRFC HUDCO RECDays of investment 317 310 288 277 255 10 Years 11.5% 10.5% 8.8% 8.6% 7.3%15 Years 14.1% 13.8% 10.4% 8.1% 9.8%

The performance is measured up to 7th November, 2012. All prices taken from exchange platforms. Tax is assumed at 30.90%. No of days of investments assumes 30 days of investment to allotment.

PERFORMANCE

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TAX FREE BONDS2012-13

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Tax free bonds have been continued to provide low cost long term finance to the public sector infrastructure spaceIssuers can raise resources under the tax free route through both private placement and public issues. Private placements are expected to begin in November where as Public issues would kick in from December

The budget for FY 2012-13 had announced an amount of Rs. 60,000 crores under tax free bonds. The notification however provides for Rs. 53,500 crores tax free bonds to be issued by the following

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SCHEDULE FOR FY 2012 - 13

Entities Aggregate Amount of Bonds (Rupees Crores)

National Highway Authority of India (NHAI) 10,000 Cr.

Indian Railway Finance Corporation (IRFC) 10,000 Cr.

India Infrastructure Finance Company Limited (IIFCL) 10,000 Cr.

Housing and Urban Development Corporation (HUDCO) 5,000 Cr.

National Housing Bank (NHB) 5,000 Cr.

Power Finance Corporation (PFC) 5,000 Cr.

Rural Electrification Corporation (REC) 5,000 Cr.

Jawaharlal Nehru Port Trust 2,000 Cr.

Dredging Corporation of India 500 Cr.

Ennore Port Limited 1,000 Cr.

TERMS OF THE ISSUE (1/2)

Reference G Sec (RRate): Average of base yield of Government Security for equivalent maturity reported by FIMMDA prevailing for two weeks ending on Friday immediately preceding the filing of final prospectus.Reference G Sec (RRate): Average of base yield of Government Security for equivalent maturity reported by FIMMDA prevailing for two weeks ending on Friday immediately preceding the filing of final prospectus.

Retail Individual investors QIBs, Corporates and HNIs

Individuals, HUFs, NRIs investing up to Rs. 10 Lakhs

AAA and AA+ Rated RRate - 65 bps RRate - 115 bps

AA Rated and below RRate - 50 bps RRate - 100 bps

Ceiling on Coupon

Eligible Investors Qualified Institutional Buyers, Corporates, High Networth Individuals, Retail Individual Investors

Tenure 10 years and 15 Years, (20 Years bond only in case of IIFCL)

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TERMS OF THE ISSUE (2/2)

10 Years 15 Years 20 Years

Average yield for 2 weeks ending 02-11-2012 8.16% 8.33% 8.36%

Annualized Yield 8.32% 8.50% 8.53%

Retail Individual investors QIBs, Corporates and HNIs

10 Years 15 Years 20 Years 10 Years 15 Years 20 Years

AAA and AA+ Rated 7.67% 7.85% 7.88% 7.17% 7.35% 7.38%

AA Rated and below 7.82% 8.00% 8.03% 7.32% 7.50% 7.53%

Reference Rate

Limit on Coupon

Retail InvestorsTax Rate AAA & AA+ AA & Below

0.00% 7.67% 7.82%10.30% 8.55% 8.72%20.60% 9.66% 9.85%30.90% 11.10% 11.32%

QIBs, Corporates and HNIs

Tax Rate AAA & AA+ AA & Below

30.90% 10.38% 10.60%

32.45% 10.62% 10.84%

Pre tax yields (for 10 Years at cap coupon rates)

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Scheme Tenor Annual Interes

t

Post tax return*

Features/Liquidity Tax Breaks

Deposit Interest

Public Provident Fund (PPF)

15 years 8.80% 8.80%Withdrawal permitted only from 6th year, subject to restrictions.

Sec 80C benefit

Tax Free

Fixed Deposits - National Housing Bank

5 years 9.58% 6.71%Withdrawal before maturity is allowed at a charge

Sec 80C benefit

Taxable

Fixed Deposits – SBI 5 years 8.50% 5.95%Withdrawal before maturity is allowed at a charge

NoneNone, TDS deductible

Senior Citizen's Saving Scheme

5 years 9.00% 6.30%5 year tenure, minimum age 55, also available with public sector banks

Sec 80C benefit

Taxable

National Saving Certificate

10 years 8.90% 6.23%No Maximum limit of investment

Sec 80C benefit

Taxable but no TDS

Post Office Time Deposit Account

5 years 8.77% 6.14% 5 year tenure,, no max limit. Sec 80C benefit

Taxable

Tax Free Bonds10 & 15 years

(20 years for IIFCL)Refer

slide #10Same as

annual int

Liquidity, no max limit, no min age, Capital gains possible (slide #6)

None No TDS*Post tax return at tax bracket of 30%. The effect of Section 80C deduction is not taken in calculation of post tax returns.The above data has been extracted on 7th November 2012 from respective websites of the issuers and other information available in news.

COMPARABLE ALTERNATIVES

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MACROECONOMIC OUTLOOKINTEREST RATE SCENARIO

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MARKET OUTLOOKRBI KEEPS POLICY RATES UNCHANGED

• The Reserve Bank of India (RBI) in its mid-quarter review of monetary policy on 30th October 2012 kept the repo rate and reverse repo rate unchanged at 8% and 7%, respectively. It reduced the CRR by 25 bps from 4.50% to 4.25%.

• The RBI continues to remain hawkish on inflation prospects in the short term. – On one hand the RBI sees pressures on food prices reducing through reduced rainfall deficit and resultant

improvement in prospects for the Rabi crops. – While on the other hand, due to continued demand supply imbalances, the prices of protein items are expected to see

some pressures. The upside risks are also expected to persist in short term due to recent hike in diesel prices as well as upward momentum seen in non-manufactured products inflation.

• As regards the next review, the uncertainty persists, and we would therefore expect the RBI to condition its response largely looking at the developments in global energy and commodity prices and its impact on domestic inflation dynamics.

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GDP Growth

Inflation

10 year G-sec

•Growth prospects for the economy expected to be revived by the wave of reforms introduced by the central government.•Capital goods growth rate, an indicator of level of investment, has seen upward movement in recent months. •IIP data in the past 2 months has seen upward movement. •IMF forecasted that the economy will grow by 4.9% during 2012. The estimate by planning commission for first half of the year however stands at 5.5% and further deceleration is not expected.

•WPI inflation for September 2012 was recorded at 7.81%, higher than 7.55% seen in August 2012•Headline inflation has moderated from levels seen in the previous fiscal year but continue to be rather high. It can be expected to remain flat or increase slightly over the coming quarters.•CPI inflation is expected to experience upward movement on account of hike in diesel prices.

The Indian macroeconomic scenario is quite stagnant and hence rate cuts look imminent. Even RBI has signalled looking at the rates in the January- March quarter.

No major events in the next 4-6 months are likely to affect the capital markets drastically.

The Indian macroeconomic scenario is quite stagnant and hence rate cuts look imminent. Even RBI has signalled looking at the rates in the January- March quarter.

No major events in the next 4-6 months are likely to affect the capital markets drastically.

MARKET OUTLOOK

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DISCLAIMER

This document is issued by SBI Capital Markets Limited (“SBICAP”) for general information purposes only, without regard to specific objectives, suitability, financial situations and needs of any particular person and does not constitute any recommendation, and should not be construed as an offer to sell or the solicitation of an offer to buy, purchase or subscribe to any securities mentioned therein, and neither this presentation nor anything contained herein shall form the basis of or be relied upon in connection with any contract or commitment whatsoever. This presentation does not solicit any action based on the material contained herein. Nothing in this presentation is intended by SBICAP to be construed as legal, accounting or tax advice. Past performance is not a guide for future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from these forward-looking statements due to various factors. This presentation and opinion, if any, contained herein have been prepared by SBICAP based upon information available to the public and sources, believed to be reliable. Though utmost care has been taken to ensure its accuracy, no representation or warranty, express or implied is made that it is accurate, authentic, fair, correct or complete. SBICAP has reviewed the presentation and, in so far as it includes current or historical information, it is believed to be reliable, although its accuracy, authenticity, correctness, fairness and completeness cannot be guaranteed. This presentation has not been approved and will or may not be reviewed or approved by any statutory or regulatory authority in India or by any Stock Exchange in India. This presentation may not be all inclusive and may not contain all of the information that the recipient may consider material. This presentation and information contained herein or any part of it does not constitute or purport to constitute investment advice in publicly accessible media and should not be printed, reproduced, transmitted, sold, distributed or published by the recipient without the prior written approval from SBICAP.

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THANK YOU

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