IIFCL to start raising Rs 10,000 cr from tax-free bonds

State-owned India Infrastructure Finance Company (IIFCL) today said it would start the process of raising Rs 10,000 crore from tax-free bonds beginning November 12.

"We have just got approval from the government for raising Rs 10,000 crore from tax-free bonds. We will be issuing first tranche Rs 500 crore on Monday," IIFCL Chairman and Managing Director S K Goel said here.

The coupon rate for the issuance would be somewhere between 7.35% and 7.40%, he said.

Of the total limit of Rs 10,000 crore, 25% would be issued to institutional investors while remaining 75% would be for retail investors.

IIFCL would be raising the entire fund in 20 tranches of Rs 500 crore each by the end of March 2013, he said.

The fund raised would be used for financing infrastructure projects.

During 2012-13 Budget, the government had announced issuance of tax-free bonds by various financial institutions to the tune of Rs 60,000 crore against Rs 30,000 crore in the previous fiscal.

This includes Rs 10,000 crore for NHAI, Rs 10,000 crore for IRFC, Rs 10,000 crore for IIFCL, Rs 5,000 crore for HUDCO, Rs 5,000 crore for National Housing Bank, Rs 5,000 crore for SIDBI, Rs 5,000 crore for ports and Rs 10,000 crore for power sector.

Talking about credit enhancement scheme of IIFCL, Goel said under this scheme, the company will provide partial credit guarantee to enhance the ratings of the project bond issue thereby enabling channelisation of long term funds from fairly untapped sources such as insurance companies and pension funds etc towards infrastructure sector.

Asian Development Bank (ADB) is participating in this endeavor by committing to support IIFCL by providing backstop guarantee facility up to 50% of IIFCL's underlying risk, he said.

Credit enhancement scheme will help the project developers to raise funds at a reasonable rate from the bond market and consequently help in development of corporate bond market in India, he added.

Goel said the pilot project would be operation by December.