Centre clears tax-free bonds by IIFCL

In order to hasten the availability of funds for the infrastructure sector, the government today approved the issuance of tax-free bonds aggregating Rs 10,000 crore by India Infrastructure Finance Company Ltd (IIFCL).

According to government sources, IIFCL will raise the funds through a combination of private placement and public issue. The coupon rate for the proposed tax-free bonds will be 7.5 per cent. IIFCL will lend the funds to banks for refinancing infrastructure projects, particularly in the road and port sectors, at 8.5 per cent. This would be equivalent to around 11 per cent pre-tax return, said a senior government official.

 

“While putting a ceiling on the maximum rate to be charged by the banks”, sources said, “these banks will lend at a maximum of 2.5 per cent over and above 8.5 per cent, the rate at which they will borrow from IIFCL.” This effectively means that India Inc can borrow at 11 per cent for the infrastructure projects.

The tax-free bonds will have sovereign guarantee for which IIFCL will pay at 25 basis points annually. The first tranche of around Rs 3,000 crore will be raised through private placement. The institution will also initiate the process for a public issue, sources said.

The proposed resources mobilisation is aimed at the cash-starved infrastructure sector. Besides giving refinance facilities, IIFCL will also lend directly through consortium-lending, sources said. The government is expected to invite bids for over 50 highway projects worth over Rs 50,000 crore.

The second round of funds mobilisation by IIFCL will involve a bond issue of Rs 10,000 crore. “The intent of tax-free bonds is to ensure that the infrastructure projects do not witness any shortage of funds,” the sources said.