'Big Gains For Small Investors'

Tisco has become a household word. Everyone, irrespective of age, caste or creed, rich or poor, investor or spendthrift, knows this word across the length and breadth of the country.

It was the vision of Jamshedji Tata which made India take its first step towards industrial development. The families of those who joined Mr Tata in this venture, which, considering the situation of those days, was the boldest step ever, have become millionaires, if not multi-millionaires. This 90-year-old flagship of the Tata group was a money spinner and continues to be so, even at the present juncture.

Today, in the wake of the much-needed boost to all the infrastructural industries, Tisco has taken yet another bold decision to expand its activities at a fast pace. Since 1980, Tisco has had an ongoing expansion and modernisation programme. In the current phase of this programme which will be part financed by the bonds now on offer the company will increase its output of saleable steel from 2.7 million tonnes a year to 3.2 million tonnes.

 

It is needless to observe that steel is the basic infrastructure of infrastructural companies. It is therefore absolutely essential for every Indian national, resident or non-resident, to support Tisco in its new vision. The future of the Indian economy is now closely linked with the expansions as well as the backward and forward integrations of existing companies.

The brand new units will have a long gestation period and, consequently, the pace of growth in the meantime will be much slower than desired.

Tisco has built up a large bank of experience and know-how over the years and I sincerely hope that the present new government has the wisdom to realise that it is a mandatory necessity to tap this hidden resource by extending support to

existing companies in some form or the other. Offering sops and tax concessions to new entrants will extract lesser mileage.

Now let us look at the bonds Tata Steel is offering, and what you can do with them. In my opinion there are big advantages in these schemes for the small investor.

Regular Income Bonds

A bond of face value Rs 5,000 gets 16.75 per cent p.a. payable half-yearly which is 17.45 per cent on an annualised basis. Redemption will be in four equal instalments of Rs 1,250 each at the end of the 7th, 8th, 9th and 10 years.

This is the highest yield amongst all the flexibonds offered so far by industrial units, with comparable safety.

Discount Bonds

Rs 5,100 will grow to Rs 25,000 in three instalments of Rs 7,500, Rs 7,500 and Rs 10,000, at the end of the 9th, 10th and 11th years respectively. This nets an effective annualised yield of 17.15 per cent.

Early redemption at the end of 5 years will be at Rs 11,250.

Twin Benefit Bonds

This is a mix of the above two types of bonds. Part-A of Rs 3,100 will grow to Rs 11,900 consisting of Rs 8,900 interest and Rs 3,100 capital at the end of the term of 10 years. Part-B of Rs 3,000 interest is paid once a year at the rate of 17.50 per cent and will be redeemed in three instalments of Rs 750, Rs 750 and Rs 1,500 each at the end of the 8th, 9th and 10th years respectively. Effective annualised yield works out at 17.22 per cent. The two parts are undetachable and can be submitted for early redemption at the end of the 5th year both by the investor and the company. The

early redemption of twin bonds will be after 5 years at Rs 6,819 + Rs 3,000 for both A and B.

Early Redemption

Many of the investors, particularly the retired persons and very old ones, shy away from such bonds under the mistaken notion that their money will be locked in for an inconveniently long period. Early redemption offer at the end of the 5th year without any loss of value is open both to the company as well as the bondholders.

Tisco has kindly catered to those who require money even earlier than 5 years in the case of original Regular Income Bond holders. This is the class that needs high levels of liquidity. The first such opportunity will be as early as March 31, 1998 and then 1999 and 2000. The penalty charged will be at the rates of Rs 180, Rs 135 and Rs 90 respectively. Tisco has also retained with itself the right to purchase the bonds in the market.

All successful allottees will earn interest at seven per cent per annum from the 5th working day from closure of the offer till the deemed date of allotment.

Why Invest in Bonds?

The share market has hit bottom and is still sliding downwards in fits and starts for the last couple of years. This phenomenon is witnessed in spite of the fact that the general health of the industries has never been as good as of now. The situation has arisen out of extraneous factors which can be corrected only by the government and it is doing pretty little to take remedial action. Until the crisis of confidence is restored, the bond is the best alternative and perhaps the only alternative the investor can turn to. In the wake of inflation, the best alternative is to earn as high a return as possible, from an extremely safe avenue.

Tata Steel Trust Bond has understandably earned a Triple-A rating of CRISIL. For the investor, it not this AAA-rating, but the fact that the bond is issued by the impeccably reputed House of Tata that carries weight.

To sum, this phase of expansion and modernisation programme of Tisco will result in emergence of a noticeably stronger and powerful force. This will benefit the nation at large. The shareholders will begin receiving much better benefits in future and therefore, it is their duty to support this bond as they would have done for a right issue. As a matter of fact, this is essentially, from their point of view, a non-voting right issue with substantially high fixed returns.

Each and every person, with his individualistic needs will find that if one of the bonds does not cater to all his problems, he can develop a mix of the three bonds satisfying him in toto.