It is a Presentation on Analysis of Fixed and Floating Interest rates of PGCIl Bonds. Also has the issue procedure of Bonds Issue and Characterstics of Bonds( YTM, Duration and Convexity)
social pharmacy d-pharm 1st year by Pragati K. Mahajan
Analysis of fixed and Floating Rates
1. Analysis of Fixed and Floating
Interest Rates
FOR POWER GRID CORPORATION OF INDIA
LTD
SUMMER INTERNSHIP
Under Guidance of:
Prof. Nalin Jain and
Mr. K.C.Pant
By:
Madhusudan Partani
PGDM-18
FORE School of Management
2. Flow of Presentation
Objectives, Scope, Data
Financial Statement Analysis
Process of Debt Raising
Yield, Duration and Convexity of Bonds
Floating and Fixed Interest Rates
Findings and Recommendations
3. Introduction of Company
Power Grid Corporation of India Limited ( PGCIL)
was incorporated on 23rd October, 1989 as National
Power Transmission Corporation Limited.. Renamed
on 23rd Oct, 1992
Sole CTU( Central transmission Unit) in the country
From Power Transmission, diversified into Telecom
and Consultancy.
4. Bond Market
Fixed Income Instruments
Major Players
Government ( Central, State and Municipal Bodies)
PSUs
Corporate
Banks
Usually Tradable ( NSE-WDM Segment)
Different Maturities ( 180 Days to 15 years)
5. Objectives
Financial Statement Analysis of PGCIL
Procedure of Debt raising through Bonds
Characteristics of Bonds
Analysis of Fixed and Floating Interest Rates
6. Scope
Study of Bonds
For FSA, the results of last 8 years and FY 2008-09
is considered
For Understanding the procedural aspects, PG XXX
issue is studied
Only 5 Bonds are considered for Analysis under fixed
and floating rates.
FRBs of other issuers and also Gsec and few PSU
Bonds are also studied
7. Data
Primary
Working manuals of Company
Approval letters, Files, Workings,
Data pertaining to Bonds issue
Discussion with merchant Banker and Internal staff of the co.
Secondary
FIMMDA and Reuters
Balance Sheets of last 8 years
IndiaStat.com and also NSE WDM Segment
8. Objectives
Financial Statement Analysis of PGCIL
Procedure of Debt raising through Bonds
Characteristics of Bonds
Analysis of Fixed and Floating Interest Rates
9. Financial Statement Analysis
Capital Composition
Sources and Applications of Funds
Ratios
Cash Flow Analysis
To understand the financial performance and
position of the company
11. Sources of Funds- 2008-09
Term Loans (Institutions)
1%
Term Loans
(Banks)
Total Current Liabilities 1%
19%
Unsecured
Loans Non Convertible
6% Debentures
28%
Secured Loans
47% Deferred Credit
Reserves and Surplus 17%
20%
Share Capital Reserves and Surplus Unsecured Loans
Total Current Liabilities Non Convertible Debentures Term Loans (Institutions)
Term Loans (Banks) Deferred Credit
Share Capital
8%
12. Applications of Funds- 2008-09
Total Current Assets
15%
Investments
3%
Net Block
Capital Work in Progress
Capital Work in Progress Investments
25% Net Block
57% Total Current Assets
14. Cash Flow Analysis
200903Change 200803
Cash and Cash Equivalents at Beginning of the year 1865.59 1196.82
Net Cash from Operating Activities 6641.09 122% 2990.83
Net Cash Used in Investing Activities -9156.75 71% -5343.31
Net Cash Used in Financing Activities 3078.95 2% 3021.25
Net Inc/(Dec) in Cash and Cash Equivalent 563.29 -16% 668.77
Cash and Cash Equivalents at End of the year 2428.88 30% 1865.59
*Detailed Break-up is available on request
15. Ratios
Debt Equity Ratios
Interest Coverage ratio
Other ratios are available on request
18. Procedural Aspects of Debt raising
(Bonds)
Issue Process
Dematerialization
Listing Agreement
Debt Servicing
19. Procedure of Issuing Bonds
Board Shortlist of Quotes' for Appointment of
Approval arrangers Arrangers fees Arrangers
Letters to and
Letter of In Principal
Draft Disclosure From
Commitments with Approval from
Document Trustee, Banker
Bids NSE
CRA
Allotment, Letters
Book Building to Arrangers and
Investors
20. Dematerialization Process
Tri-Partite Agreement between
Depository, Issuer and RTA
Letter to NSDL and CDSL along
with Application form, Master
File and Disclosures
Confirmation from NSDL and
CDSL and Details of Demat
Allotment
21. Debt Servicing
Record date
BO Position
Registrar and Transfer Agents ( RTA)
Demat and Physical Holding
DP s
PAN
Master File
List o Beneficiaries sent to Bank
Single Investor
24. Duration and Convexity
Macaulay’s Duration = Average time to receive back
the investment ( considering the YTM)
Modified Duration= Sensitivity of bond's price to
changes in the yield to maturity
Convexity is a measure of the curvature or 2nd
derivative of how the price of a bond varies with
interest rate, i.e. how the duration of a bond changes
as the interest rate changes
25. Analysis
All PGCIL Bonds and two each of PFC and GOI.
Tenure/ Maturity
Average Tenure
Coupon Rate
STRPP
29. Analysis of Fixed and Floating Rate
Fixed rates
Floating rates
FRBs
Computation of Floating Rates
30. Fixed vs Floating
Rate Determination
Fixed: Book Building for Coupon Rate
Floating: Book Building for Spread
Effect of Interest Rates Movements
31. Indian issuers going for FRBs
GOI
GOI FLOATING RATE +0.13% 2011
GOI FLOATING RATE +0.50% 2015
Indian Railway Finance Corporation Limited
(IRFCL)
Power Finance Corporation Limited,
ICICI Bank
EXIm Bank
32. Analysis
All PGCIL Bonds and two each of PFC and GOI.
Tenure/ Maturity
Average Tenure
Coupon Rate
STRPP
36. Floating Rate
Assumptions
Reference Rates
Average Monthly yield of 10 Year GSec preceding the reset
month
Average Yield of 10 year GSec for 12 months preceding the
reset month.
Average Yield of 10 year GSec for 6 months preceding the
reset month ( for Semi Annual Intrest Payment)
Average of 1 Year GSec for the past 3 days preceding the reset
date.
37. 14.000% 1 Yr Gsec Yield Vs PG Bonds
12.000%
10.000%
8.000%
6.000%
4.000%
2.000%
0.000%
IN1YT=RR PG Rate
38. Floating Rate under Reference Rate of Average yield of 1 Year
Gsec –PG VIII
Date of Issue: 27th April, 2000
Intrest Payment: Semi Annually
Coupon Rate: 10.35%
Loan Amount: Rs. 20 Crores
Repayment: 5 years Moratorium and 10 equal
Instalments
Maturity: 27th April, 2014
39. Determination of Spread
Date Yield-1yr GSec Average yield Coupon Rate Spread
26-04-
2000 9.291
25-04-
2000 9.306 9.3140% 10.35% 1.03600%
24-04-
2000 9.345 931.40%
42. Floating Rate under Reference Rate of Average yield
of 10 year Gsec Bond XIII- Opt-II
Computation of Spread
Avg Spread for AAA Bonds for 10
Years
Jun-02 138
May-02 127
Apr-02 173
Mar-02 200
Feb-02 198
Jan-02 159
Avg. 165.8333
43. Computation of Floating Rates
Average Yield for 10Yrs GSec( 12 Months preceding Coupon period)
Interest Reference
Payment Period Average Govt yield Spread Floating rate Fixed rate
Jul-03 Jul 01 - Jun 02 8.11% 1.658% 9.77% 7.85%
Jul-04 Jul 02 - Jun 03 6.39% 1.658% 8.05% 7.85%
Jul-05 Jul 03 - Jun 04 5.28% 1.658% 6.94% 7.85%
Jul-06 Jul 04 - Jun 05 6.70% 1.658% 8.36% 7.85%
Jul-07 Jul 05 - Jun 06 7.33% 1.658% 8.99% 7.85%
Jul-08 Jul 06 - Jun 07 7.88% 1.658% 9.54% 7.85%
45. Summary
Average Yield for 10Yrs GSec( Preceding Interest Payment)
(Rs. Crs)
Maturit Interest paid Under Under
Bond y till Spread Fixed Floating Savings
VIII 14 Apr-10 1.00% 18.009 15.29789 2.71111
163.205
IX 12 Feb-10
0.75% 497.8798 334.674 9
95.4274
X 14 Jun-09
1.015% 560.2883 464.8609 5
1.658% 68.82488 71.82599 -3.00112
XIII-Opt-II 6 Jul-08
1.507% 68.82488 73.49 -4.66512
0.648% 255.49 320.3901 -64.9001
XIV 12 Jul-09
0.711%2 255.49 323.0287 -67.5387
[1] Spread is determined taking previous 12 months’ average of Spread as published by FIMMDA
46. Cont
Average Yield for 10Yrs GSec( Preceding Coupon period)
(Rs. Crs)
Interest paid Under
Bond Maturity till Spread Under Fixed Floating Savings
VIII 14 Apr-10 1.00% 17.59500 14.59242 3.002577
IX 12 Aug-10 0.75% 508.473 352.3925 156.0805
X 14 Jun-10 1.015% 601.7912 494.247 107.5442
1.658% 68.82488 74.81652 -5.99164
XIII-Opt-II 6 Jul-08
1.507%2 68.82488 70.4959 -1.67103
0.648% 286.4584 353.1248 -66.6663
XIV 12 Jul-10
0.711%2 286.4584 356.0833 -69.6249
47. Factors for Consideration
Term
Short Duration: Fixed
Long: Floating
Coupon Rate
Market Condition
XII Issue ( Unfavorable Market Condition)
Quantum of Loan
Repayment Structure
49. Findings and Recommendations
Fixed Coupon Rate
Easy Budgeting
Perferable by Fixed Income Section
Suitable for Conservative Company
But
Cannot take advantage of Interest Fall
True market situation is not reflected in interest payment
Is to be used when market is very favourable.
50. Cont
Floating Rate
Advantage of Fluctuations
Returns on security is reflected by Market conditions
Suitable in case if market is not favorable at the time of issue
But the company will not be able to budget, this can
be solved by maintaining Provisions
51. Fixed Interest rate with Call Option to issuer
Can Call for repayment in case of fall in Interest rates.
Also, since the Investors do not have the Put Option the
uncertainty of Disbursements in case of sudden selling of
bonds by investors is avoided.
52. Recommendations
The company can go for Fixed Intrest rate if the market
conditions are favourable at the time of issue.
Also for the meagre loan amount, the company can be
indifferent between the Fixed and the Floating rate.
For a longer maturity bond, Fixed interest is to be
preferred if the yield curve of the GSec is at its low, and
the floating is to be preferred if the yield curve is at its
high.
In case of recession, the yield of GSec, the interest rates
are low; the investors become prudent and prioritise the
security to the returns. Thus at such conditions, fixed
coupon rate can be issued as the company will be able to
attract investment at low coupon rate.