Govt allows 13 cos to raise Rs 48k cr via tax-free bonds

The government has allowed 13 public sector institutions to raise Rs 48,000 crore through tax free bonds in 2013-14 to meet their infrastructure needs. For the first time, sovereign wealth funds (SWFs) have been allowed to invest in the private placement segment of these bonds.

Private placement will be 30 per cent of the issue and subscription by SWFs would bring more dollars into the country at a time when high current account deficit and falling rupee are a cause of concern.

“The issuers shall earmark suitable amounts within their private placement allocation for placing with Sovereign Wealth Funds, Pension and Gratuity Funds without the requirement of book building procedure,” the Central Board of Direct Taxes said in a circular.

More than half of it will be lapped up by India Infrastructure Finance Company, Indian Railway Finance Corporation (Rs 10,000 crore each) and Power Finance Corporation (Rs 5,000 crore)—also asked to raise dollars by issuing quasi sovereign bonds to the tune of $4 billion (about Rs 24,000 crore).

National Highway Authority of India (NHAI), Housing and Urban Development Corporation, and Rural Electrification Corporation would raise Rs 5,000 each. NHAI had failed to issue Rs 10,000 crore of bonds it was sanctioned last year.

Other companies like National Housing Bank and Ennore Port, who could not raise the sanctioned amount in 2012-13, also saw a cut in their bond size to Rs 3,000 crore and Rs 500 crore, respectively, while Jawaharlal Nehru Port Trust and Dredging Corporation of India have not been allowed to raise bonds this year.

Other companies allowed to issues the bonds include NTPC (Rs 1,750 crore), NHPC and Indian Renewable Energy Development Agency (Rs 1,000 crore each), Airports Authority of India (Rs 500 crore each), and Cochin Shipyard (Rs 250 crore).

Retail investors, qualified institutional buyers, corporates and high networth individuals could subscribe to these bonds with tenure of 10, 15 or 20 years. There will be ceiling on coupon rates based on reference government security (G-Sec) rate. The ceiling rate would be 55-80 basis points lower than the reference G-sec rate for AAA rated issuers. It would be slightly higher for other issuers.

The companies would have to raise at least 70 per cent of the aggregate amount through public offerings and 40 per cent of such an issue have to be reserved for retail investors.      

In Budget 2013-14, the government earmarked Rs 50,000 crore for tax-free bonds, but put a rider that these would be allowed strictly based on the need and capacity of an institution to raise money.

Last year, the finance ministry sanctioned 10 companies to raise Rs 53,000 crore, but they could raise about Rs 14,763 through public issue and 4,000 crore through private placement. Brokers attributed the poor response to the coupon rate that was kept 50-100 basis points lower than the G-Sec rate.

According to the finance ministry, however, slower economic growth rather than the interest rates kept investors away from these bonds last year.