State-owned Rural Electrification Corporation (REC) is looking to come out with tax-free bonds next week, close on the heels of a resounding success for the Power Finance Corporation (PFC) issue.
The government has allowed REC to raise a total of R1,000 crore through tax-free bonds, out of which R300 crore can be mopped up via private placement of corporate bonds.
According to a government notification, at least 70% of the total allotted amount should be raised via public issue of debt, while the rest could be through private placement. Market participants have indicated that the public issue of tax-free bonds will likely start in August.
PFC was also permitted a limit of R1,000 crore out of which it raised R300 crore through private placement by issuing 10-year bonds at a coupon rate of 7.16%.
Yields on tax-free bonds are at least 100-125 bps lower than those on regular bonds issued by the same companies, according to bond arrangers.
“REC’s issue will likely carry the same coupon as the recently issued PFC’s tax-free bonds. For a regular corporate bond issue with a tenure of 10 years, REC might get a yield close to 8.50-8.60% as of now,” said Ajay Manglunia, senior vice-president-fixed income, Edelweiss Securities. Indian Railway Finance Corporation (IRFC) will decide on the timing of its tax-free bond issuance next week, according to a source in the company.
IRFC has been allotted a limit of R6,000 crore of tax-free bonds out of which the company can raise R1,800 crore through private placement.
PFC is likely to tap the market with its regular corporate bond issue next week, according to bond arrangers who added that Nuclear Power Corporation of India (NPCIL) may approach in the last week of this month.
“NPCIL is looking to raise between Rs 2,500 cr and Rs 3,500 crore and the company will tap the markets in the last week of this month,” a source said.