IIFCL to raise Rs 10k cr by March

Fresh bonds to carry 7.5% coupon; will fall in EEE tax-exempt category.

State-owned India Infrastructure Finance Company Ltd (IIFCL) is likely to raise another Rs 10,000 crore through tax-free bonds to refinance bank loans to infrastructure projects.

This is in addition to the Rs 10,000 crore that the government announced in its economy stimulus package Sunday, making for a total of Rs 20,000 crore of infrastructure refinance in this financial year.

Senior government officials confirmed that the first Rs 10,000 crore tranche would be completed immediately and the second before the end of March.

The coupon rate for these bonds is expected to be 7.5 per cent. The first tranche is expected to have a maturity period of five years. “For the second tranche, we may even go for longer term maturity with call and put options,” sources said.

“The exercise needs to be completed as soon as possible so that funds are made available for the infrastructure sector, which is the engine of growth and will fuel demand for other sectors,” S S Kohli, chairman and managing director of IIFCL. He, however, declined to disclose details.

Since the government will provide these bonds with sovereign guarantees, private trusts and institutions are likely to invest in then, added the chairman of a leading private sector bank.

The new instruments would fall in the category of exempt, exempt and exempt (EEE), which means that the investment would qualify for exemption from taxable income and the interest accrued would also be exempted. Finally, the redemption amount at maturity would also be exempted from taxable income, sources said.

The government is set to approve these bonds by the end of this week, sources said. “In fact, former Finance Minister P Chidambaram had approved just before moving to the home ministry,” sources said.

The Planning Commission had originally suggested that the government should use around $10 billion of foreign exchange reserves to refinance infrastructure loans but the Reserve Bank of India was reportedly reluctant to do so.

IIFCL will provide refinance facilities to banks and financial institutions at around 10 per cent, the objective being to provide funds to the sector at around 11 per cent, a senior government official said on condition of anonymity.

Refinance facilities will also be available for both projects that have not achieved financial closure and also new projects.