IIFCL lowers ticket size for bond investment to attract HNIs

India Infrastructure Finance Company (IIFCL), the government-owned financial institution, is reducing the minimum ticket size for investment in its tax-free bonds from Rs 1 crore to Rs 10 lakh.The instrument, announced as part of the stimulus package, will offer 6.8 per cent returns to investors.

The company’s second issue is due to open next week, though no date has been finalised, sources said. According to financial product distributors, the IIFCL bond issue is likely to hit the market after Tata Capital’s non-convertible debenture issue closes on February 20.

The issue will hit the market in the last 45 days of the financial year, when retail investors make the maximum investment to claim tax benefits. “It will provide a chance to a wider audience to participate, especially to high net worth individuals (HNIs),” said Rajiv Bajaj, Vice-Chairman and Managing Director, Bajaj Capital, an investment advisory and financial planning company.

Distributors, however, said that the IIFCL bonds may not impact other instrument such as Tata Capital’s non-convertible debentures, which is present in the market.

“Tata Capital is a different deal altogether since it offers 12 per cent taxable returns. This (IIFCL issue) will attract a different set of investors,” added an executive at RR Financial, which claimed to be the largest distributor for Tata Cap’s issue.

“IIFCL is looking at HNIs who are looking for tax-free investment options. In contrast, Tata Capital is looking at all investors and there is an independent appetite for both the instruments,” he said.

As part of the two stimulus packages announced by the government, IIFCL is allowed to mop up Rs 40,000 crore in tax-free bonds. This year, the company is looking to mop up Rs 10,000 crore, for which it has received government guarantee.

In the first tranche, IIFCL raised Rs 7,370 crore during the third week of January. The bond, which was guaranteed by the government, offered a 6.85 per cent tax-free return to investors and had a maturity period of five years. The oversubscription had surprised the merchant bankers and IIFCL executives.

There is, however, no clarity on when the funds raised through the bonds would be deployed. “The deployment will start once bidding for new infrastructure projects is completed. There are highway and power projects which are being bid for and they will need resources, especially when the fund raising avenues are fewer and it is tough to access overseas capital,” said an executive.