The government has allowed 13 public sector institutions to raise Rs 48,000 crore through tax-free bonds in 2013-14 to meet their infrastructure investment needs. For the first time, sovereign wealth funds (SWFs) have been allowed to invest in the private placement segment of these bonds.
Private placement will be 30 per cent of the issue and subscription by SWFs would bring more dollars into the country, at a time when a high current account deficit and the falling rupee are a cause of concern.
“The issuers shall earmark suitable amounts within their private placement allocation for placing with SWFs, pension and gratuity funds without the requirement of a book building procedure,” the Central Board of Direct Taxes said in a circular.
Half the tax-free bonds would be from three entities — India Infrastructure Finance Company, Indian Railway Finance Corporation (Rs 10,000 crore each) and Power Finance Corporation (Rs 5,000 crore). They’ve also been asked to raise dollars by issuing quasi sovereign bonds of $4 billion (about Rs 24,000 crore).
National Highways Auth-ority of India (NHAI), Housing and Urban Development Corp-oration and Rural Electrific-ation Corporation would raise Rs 5,000 crore each. NHAI had failed to issue Rs 10,000 crore of bonds last year, though it was sanctioned. National Housing Bank and Ennore Port, which could also not raise the sanctioned amount in 2012-13, saw a cut in their sanctioned bond size to Rs 3,000 crore and Rs 500 crore, respectively.
Jawaharlal Nehru Port Trust and Dredging Corporation of India have not been allowed to raise bonds this year.
Other companies allowed to issues the bonds are NTPC (Rs 1,750 crore), NHPC and Indian Renewable Energy Development Agency (Rs 1,000 crore each), Airports Authority of India (Rs 500 crore) and Cochin Shipyard (Rs 250 crore).
Retail investors, qualified institutional buyers, companies and high net worth individuals can subscribe to these bonds, with a tenure of 10, 15 or 20 years. There will be a ceiling on coupon rates based on the reference government security (G-Sec) rate. The ceiling rate would be 55-80 basis points lower than the reference G-sec rate for AAA-rated issuers. It would be slightly higher for other issuers.
The companies would have to raise at least 70 per cent of the aggregate amount through public offerings and 40 per cent of such an issue would have to be reserved for retail investors.