SECURED AND SENIOR BOND FROM UP POWER, MARCH 2022, SHOULD YOU INVEST?

Bond overview 

UP Power Corporation Limited has raised Rs 2000 Cr by issuing A+ (CE) rated bonds through Private Placement from 29 March 2022. They are being issued in eight different sub-series. The coupon rate is 9.7% which is much higher than FD rates. They come with different tenures ranging from 3 years to 10 years, with each series having equal quarterly redemption. Debenture Trustee Beacon Trusteeship Limited and Beetal Financial & Computer Services Private Limited is the Registrar and Transfer Agent of the issue.

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Redemption

The issue of Rs. 2,000 crores (plus green-shoe option for an aggregate amount of up to Rs. 8,000 crores) comprises of 8 Sub-Series (A to H) as mentioned above of sequentially, redeemable bonds in equal quarterly amounts.

Each of the Sub-Series ‘A’ to Sub-Series ‘H’ would be redeemable in 4 equal quarterly installments of 3.125% (Rs. 62.50 crores considering the base issue size) of the aggregate issue size, with the redemption of Sub-Series ‘A’ commencing from the end of 9th quarter, Sub-Series ‘B’ commencing from the end of 13th quarter and so on.

Tenure

Series A to H, for tenor 3 years to 10 years, with equal quarterly redemption in each Series, with the first redemption scheduled in the 9th quarter.

Investment Process for UPPCL

 

Note : Place your order through GoldenPi and settle your amount by RTGS  to ICCL before 1 pm.

Issue Analysis 

Pros 

• The NCDs are A+ (CE) rated securities. A+rated securities fall into the category of investment grade hence underlying credit risk is assumed to be quite low. 
• The coupon rate is 9.70% that is much higher than (3 to 4%)  FD rates.
• All the series are fully secured by the budgetary allocation of the Government of Uttar Pradesh.
• To service this debt instrument, 20 crores is escrowed everyday as electricity receivables from discoms.

Cons

• Negative cash flow from operating activities.
• Fiscal Deficit of Uttar Pradesh is budgeted at 34.20% in FY22, stating state’s high debt burden.
• High losses due to collection inefficiency.

Default Interest Rate

Including but not restricted to the following:

• In case of default in payment of interest and/or principal redemption on the due dates, additional interest of @ 2% p.a. over the Coupon Rate will be payable by the issuer for the defaulting period on defaulted amount.
• In the event the security stipulated is not created and perfected within the timelines as stipulated in the column titled ‘Security’, additional interest of 1% (one percent) per annum or such higher rate as may be prescribed by law, shall be payable on the principal amount of the Debt Securities till the date of perfection of the security interest.
• In case of delay in listing beyond 4 (four) Business Days from the Issue Closing Date, the Company will pay additional interest of 1% p.a. over the Coupon Rate to the Debenture Holders from the deemed date of allotment till the listing of Debt Securities. Further, the Company shall be permitted to utilise proceeds of its subsequent two privately placed issues, only after receiving final listing approval from the Stock Exchange.

Company overview 

Run by approximately 34000 employees, UPPCL is responsible for electricity transmission and distribution within the state of Uttar Pradesh. Power sector reforms and restructuring in UP led to the creation of UPPCL in January 2000. UPPCL became an independent government company in 2007 from Uttar Pradesh Power Transmission Company Ltd. The five discoms under UPPCL include Dakshinanchal Vidyut Vitran Nigam Ltd (Agra discom), Madhyanchal Vidyut Vitran Nigam Ltd (Lucknow discom), Purvanchal Vidyut Vitran Nigam Ltd (Varanasi discom), Paschimanchal Vidyut Vitran Nigam Ltd (Meerut discom), and Kanpur Electricity Supply Company.

Financial Overview

Cash flow last 2 years

Cash flow refers to the movement of cash in and out of the business at a specific point in time. It represents the net balance of the cash movement.

•  *Cash flow from operating activities reflects the amount a company generates through its product of services.
•  **Cash flow from investing activities reflects cash generated and spent relating to investing activities, like  purchase of assets, sales of securities etc.           
•   ***Cash flow from financing activities gives an insight into the financial stability of a company to its investors. It reflects the net flows of cash that are used to fund the company.

Ratio Analysis

Key Highlights 

• Customer base – 3 Crore.
• Connection Load- 37,000 MW.
• Energy Sales- 55,000 MU per year.

Strengths 

• Backed by Government of Uttar Pradesh.

• Bond issuance to have additional cushion of budgetary allocation from the Govt of Uttar Pradesh covering the entire debt segment.
• Uttar Pradesh being the 3rd largest state, has revenue surplus revenues since 2017.

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