A day before the issue closes, Indian Railway Finance Corporation (IRFC) has collected close to Rs 1,150 crore through tax-free bonds as against its target of Rs 1,000 crore. Since the company has built in a green shoe option, however, for an amount of up to Rs 2,000 crore, IRFC may hold on to the over-subscribed portion.
In the last two months, there have been three retail bond issues from State Bank of India (SBI), L&T Infra and IDFC. SBI’s retail bond issue of Rs 1,000 crore, which doesn’t offer a tax break, saw a subscription of 17.3 times while L&T Infrastructure?s retail long-term bond issue for Rs 200 crore was also fully subscribed. IDFC, which plans to raise Rs 3,400 crore, in several tranches by March 2011, raised Rs 436 crore in the first tranche.
According to the sources, collections for IRFC’s bonds with a 5- year tenure have been the lowest at Rs 150 crore. It is the longer-tenure bonds that seem to be more popular; bonds with maturities of seven and ten years have seen subscriptions of around Rs 400 crore and Rs 600 crore, respectively.
Among the investors have been public sector banks including Punjab National Bank, Indian Overseas Bank, Oriental Bank of Commerce. High net worth individuals too have shown keen interest, merchant bankers said.
Initially IRFC had decided not to raise more than Rs 200-300 crore worth of bonds with a five-year tenure and, according to sources, had asked the merchant bankers not to accept subscriptions beyond a point. However, since the response was good, the firm decided to accept subscriptions although it prefers long-term money. The tax -break on the bonds is an attraction; the interest income will be tax free.
The pre-tax annualised yield would work out to 9.27% for 5-year tenure, 9.68% for 7-year tenure and 10.30% in 10-year tenure for banks and corporates at the maximum tax rate of 33.66%. For individuals, the pre-tax annualised yield could be 8.90% for the 5-year bond, 9.30% for the 7-year maturity and 9.89% for the 10-year tenure at a tax rate of 30.90%.
The AAA-rated bonds for 5, 7 and 10 years offer a coupon of 6.05%, 6.32% and 6.72%. Rajendra Kashyap, MD, IRFC, told FE, ?The investment in our bond issue is as risk-free as investment in government securities and the major subscription is expected to come from HNIs and corporates. For corporates, some railways group companies like IRCON International, would subscribe to the issue along with some other medium to large size corporates.?