For the first time this fiscal, the public issue of tax-free bonds is witnessing a coupon below 7% on 10-year paper for categories that include institutionals, corporates and HNIs.
Bond arrangers said Rural Electrification Corporation (REC) is set to come out with its public issue of tax-free bonds worth Rs 700 crore at a coupon rate of 6.89%, 7.09% and 7.18% on its 10, 15 and 20-year tax-free bonds, respectively, for categories that include institutionals, corporates and HNIs.
For retail individual investors, the coupon rates are at 7.14%, 7.34% and 7.43% on 10,15 and 20 years, respectively, arrangers said, adding that the issue is set to open on October 27 and close on November 4. Shashikant Rathi, executive vice-president-Investments at Axis Bank, said this is the first time in probably three years that the coupon on a corporate paper in the form of a public issue is being priced at a coupon of sub-7%.
On September 29, the RBI had cut repo rate by 50 bps to 6.75%, which eventually transmitted into lower G-Sec yields. The coupon on tax-free bonds is calculated on the basis of the G-Sec yields of the previous two weeks.
Ajay Manglunia, executive vice-president-fixed income at Edelweiss Securities, said the previous two public issues of NTPC and PFC had seen massive over-subscription and allotment to retail investors was limited.
“This time, in the case of REC’s public issue, retail investors might find better allotment, considering that this is the third public issue this fiscal year,” he said.
Manglunia also pointed out that the 20-year option that offers yield of 7.43% is a true attraction here, which may not be available in all issuance. Going forward, NHAI is set to come out with its public issue of tax-free bonds, according to bond arrangers, who said the issuance might happen after Diwali. NHAI has been allotted an overall tax-free bond quota of R24,000 crore.