TN Power Finance: Well-insulated

Sanjiv Shankaran

TAMIL Nadu Power Finance and Infrastructure Development Corporation (TNPF), an entity wholly owned by the Tamil Nadu Government, accepts fixed deposits, both cumulative and non-cumulative.

TNPF offers a Regular Interest Payment Scheme (RIPS) for 1 to 5 years. Interest is paid at quarterly intervals for all deposits; for interest at monthly intervals, the deposit has to be locked for a minimum of three years. The minimum deposit is Rs 10,000.

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The interest rate for the one- and two-year RIPS is 10.59 per cent and 11.10 per cent respectively. Both rates are higher than that available from comparable institutions enjoying some kind of sovereign backing, and offer income-tax concessions.

For the cumulative deposit scheme (minimum deposit Rs 5,000), investors may consider the one- and two-year options. The first offers 11.02 per cent, and the second 11.57 per cent. Both schemes seem attractive in the backdrop of attendant risks.

TNPF's deposit schemes at the shorter-end of the maturity period appear attractive considering the attendant risks. As the relatively higher level of interest rate offered and the Crisil rating suggest, the deposits are not the safest ones in the market. For investors who have an appetite for some risk, the one and two-year deposits offer attractive returns.

Business: TNPF was established in 1991 by the Tamil Nadu Government to fund the generation activities of the Tamil Nadu Electricity Board (TNEB). Since then, the company has extended its operations to finance transmission and distribution equipment. With the entry of private power generators, TNPF has kept open the option of financing such projects.

TNPF's success is underpinned by the health of the State Government's finances. Consider this: 97 per cent of the company's asset portfolio is directed towards the TNEB, while 85 per cent of the liabilities are due to the State Government. Thus, the TN Government and the TNEB have an overwhelming influence on the company's fortunes.

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Track record: TNPF is a profit-making company that has registered a net profit margin of 7-8 per cent over the last couple of years. Thus far, TNPF has not faced repayment problems on account of the exposure to the TNEB. The safety level of the loans to the TNEB appears satisfactory because they have State Government guarantee. The hire-purchase loans are backed by the assets financed.

Safety: The overwhelming influence that exposure to the TNEB will have on the financial soundness of TNPF suggests that the key to the safety of the deposits lies with the TN Government.

Crisil has assigned an FA+ (satisfactory safety) rating for TNPF's fixed deposit programme. Crisil's assessment of the Government of Tamil Nadu's finances is that they are well placed over the next couple of years -- a conclusion that suggests that exposure to TNPF's deposits may be restricted to the medium-term.