Less than a week after the government permitted seven companies to raise Rs 40,000 crore through tax-free bonds in FY16, Power Finance Corporation (PFC) could be the first to hit the market, say bond market sources.
“PFC is seeking bids for its Rs 300-crore tax-free bonds through private placement on Tuesday. The company has fixed the coupon rates for its 10-year bonds at 7.16%, 15-year bonds at 7.39% and 20-year bonds at 7.45%,” said a bond arranger. Market participants indicated the pay-in date would be July 17.
PFC has been allotted Rs1,000 crore of tax-free bonds in FY16 of which the company is raising Rs 300 crore on a private placement basis. According to the government notification, only 30% of the allotted amount could be raised through private placement, while the rest has to be done through public issue. Bond market experts believe the public issue of these bonds would start in August.
“PFC is really gaining from this tax-free bond issue. Had PFC come to the market with its regular corporate bond, the coupon rate would have been close to 8.60% for its 10-year issue. Through this tax-free bond issuance, the company is saving at least 120 basis points,” said Ajay Manglunia, senior vice-president-fixed income at Edelweiss Securities.
National Highways Authority of India, Indian Railway Finance Corporation, Housing and Urban Development Corporation, Indian Renewable Energy Development Agency, Rural Electrification Corporation and NTPC are the six other companies that have been allotted tax-free bonds this fiscal.
NHAI has been allotted the largest amount of Rs 24,000 crore, while IRFC and Hudco have been permitted to raise Rs 6,000 crore and Rs 5,000 crore, respectively, through tax-free bonds. IREDA has been allowed Rs 2,000 crore, while PFC, REC and NTPC can raise Rs 1,000 crore each.
REC could be the next to raise funds through tax-free bonds, a bond arranger said, indicating that other companies are likely to approach the market soon. Tax-free bonds made a comeback this fiscal after remaining absent in FY15. They were introduced in 2011-12 with an overall limit of Rs 30,000 crore to boost infrastructure spending.s