IDBI Flexi-20 draws good retail response

Industrial Development Bank of India (IDBI), which is on the threshold of being converted into a full-fledged commercial bank, has received a huge response from retail investors for its Rs 800 crore Flexibond issue.

Retail investors lapped up almost 80 per cent of the issue while the balance subscription came from provident funds, mutual funds, insurance companies and banks.

"The 20th series of our Flexibond issue received close to three lakh applications from the retail segment. The issue, which was open between January 19 and February 12, has been entirely subscribed," a senior IDBI official said.

The last issue of Flexibonds, with a target amount of Rs 300 crore, was oversubscribed to the tune of 196 per cent of issue size.

Over 50 lakh investors have invested over Rs 15,000 crore in the previous 19 issues of IDBI Flexibonds. This is the second public issue in the current financial year.

IDBI's Flexibond issue had a target amount of Rs 400 crore with a greenshoe option to retain an additional Rs 400 crore.

IDBI Flexibonds-20 had been rated 'AA+ (rating watch with developing implications)' by Crisil, 'AA+(ind) (rating is evolving)' by Fitch Ratings and 'LAA' by Icra. These ratings signify high safety with regard to timely payment of interest and repayment of principal.

Rating watch is evolving signifies the possibilities of changes in ratings of debt instruments.

The 20th issue of IDBI Flexibonds 20 offered four instruments: IDBI Infrastructure (Tax Saving) Bond, IDBI Money Multiplier Bond, IDBI Floating Rate Bond, and IDBI Regular Income Bond.

Investment in the IDBI Infrastructure (Tax Saving) Bond is eligible for tax benefits u/s 88 of IT Act, 1961, up to an investment of Rs 1,00,000, if the bonds are held for a minimum period of three years from the date of allotment.

Assuming a tax benefit of 15 per cent on the invested amount, the return to the investors under the various options ranges from 9.25 per cent to 11.71 per cent. The minimum investment is one bond of Rs 5,000.

The investor could choose from 4 options, two annual interest options and two cumulative options. Under the annual interest option, the investor could choose to receive interest at the rate of 5.50 per cent annually, payable annually for three years or at 5.75 per cent per annum payable annually for five years.

Under the cumulative option, an initial investment of Rs 5,000 becomes Rs 6,030 after three years and six months (YTM 5.50 per cent) or Rs 6,615 after five years (YTM 5.75 per cent).

Investment in the Money Multiplier Bond offers long-term returns under two options. The minimum investment is one bond of Rs 5,000.

Under Option A, an investor receives Rs 7,500 after a maturity period of 6 years 11 months for an investment of Rs 5,000 (YTM 6.03 per cent).

Under Option B, an investor receives Rs 10,000 after a period of 11 years 5 months for an investment of Rs 5,000 (YTM 6.25 per cent).

Under the Floating Rate Bond, the minimum investment is in two bonds of face value of Rs 5,000 each involving an aggregate investment of Rs 10,000. The bonds have a maturity of 5 years.

The bonds offered semi annual interest at a spread of 100 bps over the benchmark rate that is 5 year G-sec rate. The interest rate will also be reset semi annually.

In the case of Regular Income Bond, investors can get returns by way of regular and stable income in the long term through various options.

The bond offered 4 options (annual and quarterly interest payment) over a period of 7 years and 10 years, respectively. The minimum investment was two bonds of face value of Rs 5,000 aggregating Rs 10,000 under annual options and six bonds of face value of Rs 5,000 aggregating Rs 30,000 under cumulative options.

Options A (7 years) and C (10 years) offer annual interest payment to investors at 6 per cent and 6.20 per cent, respectively. Options B (7 years) and D (10 years) offer quarterly interest payment at 5.80 per cent and 6.00 per cent, respectively.