PFC - Tax Free Bonds

HIGHLIGHTS OF TAX BENEFITS

In exercise of the powers conferred by item (h) of sub-clause (iv) of clause (15) of Section 10 of the Income Tax Act, 1961 (43 of 1961) the Central

Government has authorised Power Finance Corporation Ltd. to issue during the FY 2012-13, tax Free secured redeemable non-Convertible Bonds

for the aggregate amount of Rs 5000 crores.

Interest from the bond will be exempt from income tax.

Since the interest Income on these bonds is exempt, no Tax Deduction at Source is required on the same.

Wealth Tax is not levied on investment in Bonds under section 2(ea) of the Wealth-tax Act, 1957.

HIGHLIGHTS

A Nav-Ratna Government of India undertaking (As of 30th September 2012, 73.72% equity shareholding is held by GOI)

A specialised development financial institution, PFC was set up in 1986 to fund projects in the domestic power sector.

Classified as Infrastructure Finance Company in July 2010 by RBI & a Public Financial Institution under section 4 A of the Companies Act.

Provides a comprehensive range of financial products and related advisory and other services from project conceptualization to the post-commissioning

stage for our clients in the power sector, including for generation (conventional and renewable), transmission and distribution projects as well as for

related renovation and modernization projects.

Expanded its focus areas to include projects that represent forward and backward linkages to the core power sector projects, including procurement of

capital equipment for the power sector, fuel sources for power generation projects and related infrastructure development. PFC also intends to fund

power trading initiatives.

Allied with the Government of India in the implementation of its Accelerated Generation and Supply Program (“AG&SP”) and Accelerated Power

Development and Reform Program (“APDRP”)

Promoted PTC (India) Ltd. as joint venture along with NTPC and PGCIL

Total loan assets increased from Rs. 51,568.31 crores as of March 31, 2008 to Rs. 1,40,819.21 crores as of September 30, 2012.

Total income increased from Rs 5,040.04 crores as of March 31, 2008 to Rs 8,136.02 crores as of September 30, 2012, while Profit after tax increased

from Rs 1,206.76 crores as of March 31, 2008 to Rs 2,008.37 crores as of September 30, 2012.

Capital Adequacy Ratio of 17.69% as of September 30, 2012, against 15.00% norm as specified by RBI for IFCs

The Net Interest Margin (NIM) stood at 4.23% for the half year ending September 30, 2012

Gross NPA ratio of 0.97% of total loan assets as on September 30, 2012

Source: Shelf Prospectus Dated December 8, 2012 Disclaimer: “Invest only on the basis of Prospectus”

PFC - Tax Free Bonds

SALIENT FEATURES OF THE PROPOSED TAX FREE BONDS

Tax benefits u/s 10 (15) (iv) (h) of the Income Tax Act, 1961

The Bonds are tax free in nature and the interest on the Bonds will not form part of the total taxable income of Bondholders.

Credit Ratings of “CRISIL AAA/Stable” by CRISIL, “[ICRA] AAA” by ICRA. Instruments with these ratings are considered to have the highest degree of safety regarding timely servicing of financial obligations and such instruments carry lowest credit risk

Bonds can be held in physical or in dematerialized form, at the option of bondholders but the trading of the Bonds shall be in dematerialized form only

Bonds are proposed to be listed on the BSE

Strengths

Comprehensive financial assistance platform focused on the Indian power sector

PFC provides a comprehensive range of financial products and related advisory and other services. It provides various fund-based financial products including long-term project finance, short-term loans, buyer's line of credit and debt refinancing schemes, as well as non-fund based assistance including default payment guarantees and letters of comfort. PFC also provides various fee-based technical advisory and consultancy services for power sector projects.

Strategic role in GoI initiatives and established relationships with power sector participants

PFC has played a strategic role in the GoI’s initiatives for the promotion and development of the power sector in India for more than two decades. PFC has developed strong relationships with the Central and State governments, various regulatory authorities, significant power sector organizations, Central and State power utilities, private sector project developers, as well as other intermediaries in the power sector. PFC provides value to its clients in various ways, by supporting their operations as well as providing assistance with long-term reform and restructuring programs. This unique positioning enables the company to leverage as a preferred financing provider for the power sector in India.

Operational flexibility & Favorable Credit Rating to help in fundraising and lending opportunities

PFC’s NBFC and IFC classification enables it to be operationally more flexible and effectively capitalize on available financing opportunities. Its classification as an IFC enables it to increase its lending exposures to individual entities, corporations and groups, compared to other NBFCs that are not IFCs. Further with the highest credit rating ‘[ICRA] AAA’ and ‘CRISIL AAA/ Stable’, the company has access to various cost-competitive sources of funds.

Experienced and committed management

The management has significant experience in the power sector and the financial services industry, which has enabled it to develop a comprehensive and effective project appraisal process, implement a stringent risk management framework, identify specific requirements of power sector projects and offer comprehensive financing solutions and advisory assistance to such projects. Further the experience of its management has enabled it to successfully identify attractive financing opportunities.

Source: Shelf Prospectus Dated December 8, 2012 Disclaimer: “Invest only on the basis of Prospectus”

PFC - Tax Free Bonds

Issue Structure

Issuer Power Finance Corporation Limited

Type of instrument Tax free bonds of face value of Rs 1,000 each, in the nature of secured, redeemable, non-convertible debentures, having benefits under section

10(15)(iv)(h) of the Income Tax Act, to be issued in one or more tranches on the terms and conditions as set out in Prospectus Tranche -I Nature of the instrument Secured

Seniority Pari passu with other secured creditors Mode of the issue Public issue

Interest type Fixed Frequency of interest payment Annual

Day count basis Actual/ actual

Interest on application money As per the interest rate for the Applicant Category

Interest on refund money @ the rate of 5.00 % p.a. for all Category Portions, (except for ASBA Applicants), (subject to deduction of tax at source, as applicable) Tenor / Maturity 10 years and 15 years from the Deemed Date of Allotment Redemption Date 10 years and 15 years from the Deemed Date of Allotment Redemption Amount The principal amount on the Bonds along with interest accrued on them as on the Redemption Date Issue Price (in Rs.) Rs. 1,000 Discount at which security is issued and the effective yield as a result of such discount

Not applicable

Put /Call Option Not applicable Face value Rs. 1,000

Minimum application size 5 Bonds (Rs. 5,000) across all the Series of Bonds and in multiples of 1 Bond (Rs. 1,000) thereof

Market Lot/ Trading Lot One Bond

Pay-in date Application Date Credit ratings “ICRA AAA” by ICRA, “CRISIL AAA” by CRISIL Listing BSE

Issue size Rs. 1,000 crores Option to retain oversubscription Upto shelf limit of Rs. 4,590 crores

Debenture Trustee IL & FS Trust Company Limited

Depositaries NSDL and CDSL Registrar MCS Limited Issuance Dematerialised form or physical form* as specified by an Applicant in the Application Form

Trading In dematerialised form only

Issue opening date February 18,2013

Issue closing date

As per issue communication - The Issue shall remain open for subscription from 10:00 a.m. to 5:00 p.m. (Indian Standard Time) for the period indicated above, except that the Issue may close on such earlier date (such early closure being subject to the Category IV Portion being fully subscribed prior to such early closure) or extended date as may be decided by the Board or the a duly constituted committee thereof, subject to necessary approvals. In the event of an early closure or extension of the Issue, our Company shall ensure that notice of the same is provided to the prospective investors through an advertisement in a reputed daily national newspaper on or before such earlier or extended date of Issue closure.

Deemed date of Allotment

The date on which the Board of Directors/or any committee thereof approves the Allotment of the Bonds for each Tranche Issue or such date as may be determined by the Board of Directors/ or any committee thereof and notified to the Designated Stock Exchange. All benefits relating to the Bonds including interest on Bonds (as specified for this Issue in this Prospectus Tranche Issue-I) shall be available to the Bondholders from the Deemed Date of Allotment

Lead Managers A. K. Capital Services Limited, ICICI Securities Limited, Enam Securities Private Limited, Kotak Mahindra Capital Company Limited and SBI Capital Markets Limited

*In terms of Regulation 4(2)(d) of the Debt Regulations, our Company will undertake this public issue of the Bonds in dematerialised form. However, in terms of section 8(1) of the Depositories Act,, the Company, at the request of the Investors who wish to hold the Bonds in physical form will fulfill such request.

Source: Prospectus Tranche-I dated December 8, 2012

PFC - Tax Free Bonds

Bond Particulars

Options

Series of Bonds* Tranche-I Series 1 Tranche-I Series 2

Tenor 10 years (120 months) from the Deemed

Date of Allotment. 15 years (180 months) from the Deemed

Date of Allotment.

Redemption Date 10 years (120 months) from the Deemed Date

of Allotment. 15 years (180 months) from the Deemed Date

of Allotment.

Redemption Amount (Rs./ Bond)

Repayment of the face value and any interest that may have accrued on the

Redemption Date.

Repayment of the face value and any interest that may have accrued on the

Redemption Date.

Frequency of interest payment

Annual. Annual.

Minimum application size 5 Bonds (Rs. 5,000) across all series of bonds

In multiples of 1 Bond (Rs 1,000). 1 Bond (Rs 1,000).

Face value (Rs./ Bond) Rs. 1,000 Rs. 1,000

Issue price (Rs./ Bond) Rs. 1,000 Rs. 1,000

Coupon rate (%) p.a.

For Category I, II, III Investors: 6.88%

For Category IV Investors: 7.38%**

For Category I, II, III Investors: 7.04%

For Category IV Investors: 7.54%**

Annualized yield (%) p.a. for Category I,II,III

6.88 7.04

Annualized yield (%) p.a. for Category IV applicants**

7.38 7.54

Put option and call option

None None

* The Company shall allocate and allot bonds of Tranche I series 2 to all valid applications, wherein the Applicants have not indicated their choice of the relevant Series of Bonds.

**Please note that the additional interest of 0.50% p.a. shall only be available to the original Allottees under Category IV for the Tranche – I Series 1 Bonds and the Tranche – I Series 2 Bonds. In the event the Bonds held by the original Allottees under Category IV are sold/ transferred (except in case of transfer of Bonds to legal heir in the event of death of the original Allottee), the coupon rate shall stand revised to the coupon rate applicable for Allottees falling under Category I, Category II and Category III.

Source: Prospectus Tranche-I dated December 8, 2012 Disclaimer: “Invest only on the basis of Prospectus”

PFC - Tax Free Bonds

Who can Apply?

Category I Category II Category III

Category IV

Public Financial Institutions, scheduled commercial banks, multilateral and

bilateral development financial

institutions, state industrial development corporations, which are

authorised to invest in the Bonds;

Companies within the meaning of section 3 of the Companies Act and

bodies corporate registered under the

applicable laws in India and authorised to invest in the Bonds

Resident Indian individuals applying for Bonds aggregating to a

value exceeding Rs. 10,00,000, across

all Series of Bonds in the Issue.

Resident Indian individuals applying for Bonds aggregating upto

and including Rs. 10,00,000 across all

Series of Bonds in the Issue.

Provident funds and pension funds with

minimum corpus of Rs. 25 crores, which are authorised to invest in the

Bonds;

Hindu Undivided Families through the Karta applying for Bonds

aggregating to a value exceeding Rs. 10,00,000, across all Series of Bonds in

the Issue.

Hindu Undivided Families through

the Karta applying for Bonds

aggregating upto and including Rs.

10,00,000 across all Series of Bonds in

the Issue.

Insurance companies registered with the IRDA;

National Investment Fund; Insurance funds set up and managed

by the army, navy or air force of the

Union of India or set up and managed by the Department of Posts, India;

Mutual Funds registered with SEBI; Alternative Investment Funds, subject

to investment conditions applicable to them under the Securities and

Exchange Board of India (Alternative Investment Funds) Regulations, 2012.

Applications cannot be made by:

a) Minors without a guardian name (A guardian may apply on behalf of a minor. However, the name of the guardian will need to be mentioned on the Application Form);

b) Foreign nationals;

c) Persons resident outside India; d) Foreign Institutional Investors;

e) Non Resident Indians;

Source: Shelf Prospectus Dated December 8, 2012 & Prospectus Tranche-I dated December 8, 2012 Disclaimer: “Invest only on the basis of Prospectus”

PFC - Tax Free Bonds

f) Qualified Foreign Investors;

g) Overseas Corporate Bodies; h) Venture Capital Funds;

i) Foreign Venture Capital Funds j) Co-operative societies;

k) Regional rural banks;

l) Societies; m) Public/ private charitable/ religious trusts;

n) Scientific and/or industrial research organisations; o) Partnership firms;

p) Limited liability partnerships; and q) Persons ineligible to contract under applicable statutory/ regulatory requirements

r) Any category of investor other than the Investors mentioned under Categories I, II, III and IV.

Allocation Ratio

Category I (QIB Portion) II (Corporate Portion)

III - High Net Worth

Individual Portion (Above Rs. 10 Lakh)

IV - Retail Individual Investor

Portion

(upto and including Rs. 10 Lakh)

Size in % 25 % of

Overall Issue Size on first come first

serve basis^

15 % of

Overall Issue Size on first come

first serve basis^

20 % of

Overall Issue Size on first come

first serve basis^

40 % of

Overall Issue Size on first come first

serve basis^

^First come first serve basis determined on the basis of date of upload of the Applications on the electronic Application platform of BSE

Modes of Making Applications:

Applicants may use any of the following facilities for making Applications:

(a) ASBA Applications, for bonds only in dematerialised form, through the Members of the Syndicate or the Trading Members of the Stock Exchanges only in the Specified Cities (Mumbai, Chennai, Kolkata, Delhi, Ahmedabad, Rajkot, Jaipur, Bengaluru, Hyderabad, Pune, Vadodara and Surat) For further details please refer to “Issue Procedure– Methods of Application” on page no. 47 of Prospectus Tranche – I

(b) ASBA Applications, for bonds only in dematerialised form, through the Designated Branches of the SCSBs where the ASBA Account is

maintained. For further details please refer to “Issue Procedure– Methods of Application” on page no. 47 of Prospectus Tranche - I; and (c) Non-ASBA Applications for bonds applied in physical and dematerialised form through Members of the Syndicate or the Trading

Members of the Stock Exchanges at the centres mentioned in Application Form. For further details please refer to “Issue Procedure– Methods of Application” on page no. 47 of Prospectus Tranche - I

Source: Prospectus Tranche-I dated December 8, 2012 Disclaimer: “Invest only on the basis of Prospectus”

PFC - Tax Free Bonds

FINANCIAL HIGHLIGHTS - Standalone (Rs. in crore)

As on/For the year 31-Mar-08 31-Mar-09 31-Mar-10 31-Mar-11 31-Mar-12

Share Holders' Funds 9,329.85 11,507.82 13,260.79 15,182.49 20,707.52

Long Term Borrowing(Non-Current

Maturities of Long Term Liabilities) 32,557.27 43,197.77 54,913.28 69,984.03 95,866.98

Current Maturity of Long term Borrowing (Unsecured) 5,610.55 7,562.38 9,870.01 9,323.50 10,187.73

Short -Term Borrowing 2,480.00 1,400.00 2,325.12 6,291.04 4,071.20

Long Term Loans & Advances(Non-Current Maturities of Long Term

Loans & Advances)

45,490.77 57,063.40 70,741.85 87,423.69 112016.92

Cash and Bank Balances 695.33 392.23 1,394.30 2,350.26 1,988.20

Short Term Loans 1,486.46 1,604.54 2,948.99 2,105.77 6,177.87

Revenue from Operations 5,029.28 6,557.37 8,002.10 10,128.49 13,014.85

Expenses 3,252.64 4,593.07 5,063.66 6,616.42 8,932.86

Profit Before Tax 1,787.40 1,990.47 3,013.20 3,544.14 4,104.25

Profit (Loss) for the period from

continuing operations 1,206.76 1,969.96 2,357.25 2,619.58 3,031.74

Net NPA (%)

0.01% 0.20% 0.93%

Tier I capital adequacy ratio (%)

17.04% 14.69% 15.38%

Tier II capital adequacy ratio (%)

1.16% 1.02% 0.91%

Source: Shelf Prospectus Dated December 8, 2012

DISCLAIMER:

* For the purpose of information only, invest only after referring to the final prospectus.

This document has been prepared based on Final Prospectus and is for informational purpose only. Invest only after referring to final prospectus. It is meant for the recipient for use asintended and not for circulation. This document should not be reported or copied or made available to others. The information contained herein is from the public domain or sources believed to be reliable. While reasonable care has been taken to ensure that information given is at the time believed to be fair and correct and opinions based thereupon are reasonable, due to the very nature of research it cannot be warranted or represented that it is accurate or complete and it should not be relied upon as such.We do not guarantee the accuracy, adequacy or completeness of any Data in the Report and is not responsible for any errors or omissions or for the results obtained from the use of such Data. The company and its employees will not in any way be responsible for the contents of this report. The securities discussed in this report may not be suitable for all investors.Investors must make their own investment decision based on their own investment objectives, goals and financial position and based on their own analysis. The company states that it has no financial liability whatsoever towards any investments based on this research report. Registered Office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400 042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos. BSE Cash-INB011073351; F&O-INF011073351; NSE – INB/INF231073330; DP: NSDL-IN-DP-NSDL-233-2003; CDSL-IN-DP-CDSL-271-2004; Mutual Fund: ARN 20669; For any complaints email at igc@sharekhan.com; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI, relevant exchanges and the T & C on www.sharekhan.com before investing. Sharekhan Ltd is engaged as a distributor of IPOs/ Bonds/ NCDs/ FDs/ Mutual Funds. Sharekhanor any of its group concerns do not in any manner recommends any product or any of its characteristics. The client is advised to take his / her own independent decisions for investing in any financial product after understanding their respective nature and risk and returns involved. The client may also approach his / her own consultants for investingin financial products or in relation to the tax related aspects. We do not solicit any action based upon this promotional material. Please note that the product does not take into account any particular investment objectives, financial decisions or needs of individual recipients. Neither Sharekhan nor any person connected with Sharekhan accepts any liabilityarising out of investment suggested in this material.