Poor Response Forces Irfc To Extend Closing Of Bond Issue

The Indian Railway Finance Corporation (IRFC) has extended the closing date of its tax-free bond issue by a fortnight from January 23 to February 10 in view of its failure to elicit the expected response from the market.

The issue was for Rs 200 crore at 10.5 per cent interest and offered Income-Tax exemption for the investment.

But, reports from different centres have pegged the subscriptions at barely 50 per cent of the target to around Rs 100 crore.

The railway finance corporation has the greenshoe option, under which it is allowed to retain the surplus subscription.

Last year, the Rs 400-crore bond issue floated by the company in July was oversubscribed by Rs 93 crore and was allowed to retain the excess money. While Rs 200 crore of this issue was taxable, the rest was tax-free.

 

This time though the IRFC issue has been under-subscribed, necessitating the extension of the closing date.

This could indicate that the enthusiasm over the tax-free bonds is flagging.

One reason for this may be that with the declining tax rates, future tax liability is likely to be lower.

So, the fund managers are preferring higher interest bonds to those at low interest, despite the tax exemption benefit.

IRFC sources did not rule out the possibility, but said that the date has been extended because some major investors wanted more time as they expected surplus funds in the first week of February.

The success of the issue is crucial because IRFC has the mandate to raise Rs 1,850 crore in the current financial year to part-finance its Rs 8,130-crore annual plan.

This is why much hope has been pinned on this issue and the proposed $150-million Euroissue, for which IRFC has yet to get the finance ministrys approval.

The railway finance corporation is hopeful that the permission would be granted and it would be able to raise the equivalent in rupee terms from the domestic market for which the permission is there.

It is certain that it would be able to raise the targeted Rs 1,850 crore within the current fiscal year.