While fears of bunching up of tax-free infrastructure bond issues has already made issuers nervous, the 40% reservation of the issue for retail investors is now raising fears about the market appetite. With around Rs 16,000 crore out of Rs 53,500-crore worth bonds on offer expected to be made available to retail investors over the next four months, analysts see the retail portion remaining under-subscribed.
Companies will have to raise at least 75% of the amount of bonds issued through public issue, out of which 40% would be earmarked for retail investors. The rest can be through private placement, according to a finance ministry notification issued this year.
Moreover, the brokerage or commission given to brokers has been brought down. Rural Electrification Corporation (REC), that gave a commission of 1.2% to the brokers last year has slashed the brokerage to 75 bps this time. Analysts from broking agencies feel that this reduced incentive to sell the tax-free bonds might add to the negatives this time.
Bankers too are skeptical of the move of earmarking 40% for retail investors. “Investment appetite for infrastructure bonds is not seen good. The reward on tax benefit may not be seen adequate to cover higher credit risk. The macroeconomic dynamics are also weak with less optimism from lack of political consensus on reforms,” said Moses Harding, head asset liabilty committee and global markets, IndusInd Bank.
However he added that the only attraction is from locking into fixed rate longer tenor asset when rate reversal cycle is long overdue.
The only hope that remains is when the undersubscribed bonds from this segment would be transferred to other segments like institutional investors or HNIs. The finance ministry notification has classified Retail individual investors “those individual investors, Hindu Undivided Family (through Karta), and Non Resident Indians (NRIs), on repatriation as well as non repatriation basis, applying for up to Rs 10 lakhs in each issue”. This would widen the base of retail investors and can turn out to be helpful in consuming the earmarked quantity, analysts added.
The government this year has allowed India Infrastructure Finance Company Ltd (IIFCL), Indian Railway Finance Corporation Limited (IRFC) and National Highways Authority of India or NHAI to raise Rs 10,000 crore each through the issue, Housing and Urban Development Corporation Limited (Hudco), National Housing Bank, Power Finance Corporation and Rural Electrical Corporation (Rs 5,000 crore each), Jawaharlal Nehru Port Trust (Rs 2,000 crore), Ennore Port Limited (Rs 1,000 crore), and Dredging Corporation of India Limited (Rs 500 crore).
In the budget for the present fiscal, the government had proposed raising of Rs 60,000 crore through tax-free infrastructure bonds. However, the notification that came out earlier this month slashed the amount by Rs 6,500 crore. Last fiscal, the government-run infrastructure entities raised a total of Rs 30,000 crore through these bonds.
