Close on the heels of IFCI?s tax-free infrastructure bond issue for Rs 50 crore, Infrastructure Development Finance Company (IDFC) has announced a similar offering. The coupon for IDFC?s 10-year paper should be close to the coupon on the 10-year government bond though it cannot be above that, IDFC executive director Vikram Limaye told FE. IDFC hopes to raise Rs 3,400 crore, in several tranches, by the end of March 2011, he added. IDFC has a AAA rating from ICRA and Fitch.
The government has allowed investors a tax break, depending on the tax bracket that they fall under, if they invest in these bonds, of up to a maximum of Rs 20,000 in a financial year.
The tenure of the bonds will be 10 years with a lock-in period of five years after which the issuer can provide a buy-back facility of course the bonds will be listed.
The IFCI?s bonds came with two variants. The first comes with a buy-back option where there is a lock-in period of five years and the rate of interest is 7.85%. The buy-back option allows investors to hold the bond up to 10 years while giving investors the freedom of redeeming them any time after the lock-in. In the second option, the bond has a tenure of 10 years and gives investors a slightly higher rate of interest of 7.95%. This does not come with a buy-back option.
State Bank of India had said on Tuesday it will raise upto Rs 500 crore via a retail bond issue. ?The tenure of the bonds will be a combination of 10 to 15 years. We are still working on the finer details but the paper will carry a market-related interest rate,? said a senior SBI official. Currently AAA-rated bonds are offering investors around 8.50% and money market analysts say that if SBI decides to opt for a fixed rate instrument, it may have to tempt investors with a slightly higher rate. Says a financial advisor, ?The coupon will have to be in double digits since otherwise people may prefer to park their savings in the public provident fund.? State Bank enjoys a AAA rating and currently offers an interest of 7.75% on 8 to 10 year deposits.
IDFC’s bonds will be listed on both the NSE and the BSE. IFCI was the first to announce tax-free bonds since the finance minister announed in the Union Budget for 2010-11 that all deduction would be allowed on investments in infrastructure bonds. If an investor pays tax according to higher tax slab of 30.9%, an investment of Rs 20,000 crore, would save a retail investor Rs 6,180.