Tax free infra bonds worth Rs 20,000 crore are lined up by March

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IT IS raining tax-free bonds in India. Following the launch of Rs 10,000 crore tax-free bond issue by the National Highway Authority of India (NHAI), three more state-owned firms are lining up to issue around Rs 20,000 crore worth of tax-free bonds in the next quarter.

While the Indian Railway Finance Corporation (IRFC) is in the final stages of launching a Rs 10,000 crore tax-free bond issue, Power Finance Corporation (PFC) is coming out with a Rs 5,000 crore tax-free bond issue. Public sector firm, Housing and Urban Development Corporation (Hudco), will launch a Rs 5,000 crore bond issue as early as January 2012.

PFC and Hudco have already made private placements in October worth Rs 900 crore and Rs 400 crore, respectively, at interest linked to government securities yields on similar tenure securities in September.

Hudco, the company would launch the bonds by the middle of January 2012. The coupon rate would be based on the December-end government securities (G-Sec) rates. "We have already placed around Rs 400 crore as private placement out of the total Rs 5,000 crore we expect to mobilise.

Hudco and PFC both have offered 7.62 per cent for 10-year bonds and 7.83 per cent for 15-year bonds through the private placement route in October.
The coupon rates on taxfree bonds under private placement were around a percentage point lower than the annualised closing yield on government bonds in September.

IRFC, the financing arm of Indian Railways, has also received a man date to raise Rs 10,000 crore via issuance of taxfree bonds and it is also expected to enter the market next month.

Rajesh Kumar Khullar, joint secretary at the union ministry of finance, said he expects IRFC's issue to be preceded by the PFC issue. "We see the market conditions to be good for such bonds and expect the issues to get over in as short a time as possible, may be, in less than a week," he said.

Financial planners said these bonds are particularly appealing to high net worth investors who fall in the highest tax bracket because they can earn a tax free income. Besides, the listing of these bonds on the stock exchange will provide liquidity and possible capital appreciation once the interest rates start going down again.

This is the first time that retail participation has been allowed in tax free infrastructure bonds. We wanted everyone to enjoy the benefits of steady and stable long-term returns. Earlier, all these bonds were privately placed and would not be open for retail investors. Now, investors can invest a minimum sum of Rs 50,000 in these bonds.

 

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