Arvind Mills' Discount Bond Yield At 27.08%

The Rs 100-crore bond issue has a placement portion of Rs 60 crore, the balance being the public portion.

The issue, lead managed by Kotak Mahindra Capital Company, has been given a AA+ rating by the Cedit Rating and Informtion Services of India (Crisil).

The public issue has two components, the regular income and the deep discount bonds.

According to sources, there is strong interest in the deep discount bonds in view of the recent clarification by the Central Board of Direct Taxes.

The clarification states that on the transfer of the deep discount bonds before maturity, the difference between the sale consideration and issue price will be treated as capital gains.

 

In view of this, the sale of the bonds in the secondary market will attract long term capital gains.

Even thought the coupon on the bonds is 17.5 per cent, the pre-tax return on the bond works out to 27.08 per cent.

However, an investor who falls in the 40 per cent tax bracket will have to receive a yield of 16.25 per cent.

The issue price of the bonds is Rs 1,000 and the minimum application is five debentures and multiples of one thereafter.