State-run infrastructure finance company Power Finance Corporation (PFC) plans Rs 6,000 crore issue of tax-free bonds early next month to cash in from a surge in investor interest for these bonds expected during the last quarter of current fiscal. The bonds, which are expected to carry an interest rate of 7.5-7.75%, will be for a period exceeding 10 years with a lock in of five years.
?We have got permission for launching Rs 6,000-crore infrastructure bonds during the current fiscal. A decision on its yiming and exact size would be taken in as per the advice given by bankers and depending on the market conditions to absorb a large bond issue,? PFC chairman & managing director Satnam Singh told FE.
The tax-free infrastructure bonds were introduced in Budget 2010-11. According to the government decision, investors subscribing to these bonds can avail income tax exemption of up to Rs 20,000 every year under the recently introduced section 80CCF of the Income Tax Act. This would be in addition to tax exemption of Rs 1 lakh annually given to investors for investment in certain other specified instruments.
The bonds can be issued by Industrial Finance Corporation of India, LIC, Infrastructure Development Finance Company and non-banking infrastructure finance companies approved by the Reserve Bank of India.
It is expected that PFC bond issue may be undertaken in installments with first installmentnt of Rs 2,000-3,000 crore hitting the market by mid February and the other installment sometime in March. A PFC official said the company may not come out with full quota of Rs 6,000 crore worth of bonds but this will depend on prevailing market conditions.
In addition to bonds, PFC is also planning to raise $260 million through yen denominated loan this fiscal. The company has already invited bids from bankers to undertake this issue. The name of bankers are expected to be finalised by January 14-15 and ECB process may be started by February end. The company has also received refinance facility worth Rs 1,000 crore from IIFCL. ?All these efforts are expected to further lower our cost of borrowing and improve margins helping the company increase disbursement to the power sector,? Singh said.
?We expect the bond issue to do well as people tend to invest more in the last quarter of the fiscal to save tax. Besides, no major bond issues are lined in the coming months and hardening bond yields is also good for our issue,? said another official of PFC.
PFC, has recently got the status of infrastructure finance company from RBI. This status makes it mandatory on the company to follow strict provisioning norms and have a capital adequacy ratio of over 15%. While company’s CAR as on September 20100 stood at 17.36%, its is expected to fall in coming fiscal due to growth in business. To meet the norms, PFC is also planning to raise money from the market through FPO. The issue is expected in early part of 2011-12.
