The government on Wednesday permitted seven state-run infrastrucuture companies to raise R40,000 crore through tax free bonds (TFBs) in FY16.
According to a Central Board of Direct Taxes (CBDT) notification, the National Highways Authority of India will make the largest offering of R24,000 crore, or 60% of the total TFBs on offer this fiscal year.
The Indian Railway Finance Corporation got permission to issue TFBs of R6,000 crore, followed by the Housing and Urban Development Corporation (R5,000 crore) and the Indian Renewable Energy Development Agency (R2,000 crore), NTPC (R1,000 crore), Rural Electrification Corporation (R1,000 crore) and Power Finance Corporation (R1,000 crore).
These bonds will have tenures of 10, 15 and 20 years, according to the notification. The coupon rate is bench-marked against the government securities of equal maturity.
Retail investors, including HUFs and NRIs, can invest up to R10 lakh in such bonds. Those investing higher amounts would be classified as high networth individuals (HNIs).
“The ceiling coupon rate for ‘AAA’ rated issuers shall be the reference G-sec rate less 55 basis points in case of retail individual investors (RIIs) and reference G-sec rate less 80 basis points in case of other investor groups,” according to the CBDT notification.
If the issuers are rated ‘AA+’ and ‘AA’, the coupon rate would be 10 basis point and 20 bps more than interest rates offered by the highest rated issuers, respectively.
Besides RIIs, qualified institutional buyers, corporates, trusts, partnership firms, limited liability partnerships, co-operative banks, regional rural banks and other legal entities and HNIs would be eligible to subscribe to these bonds.
The issuer companies will have to raise 70% of the issue size through public offer, of which 40% has to be reserved for retail investors. The remaining portion of the issue size can be offered through private placement route.
These tax free bonds are expected to hit the market in the second half of FY16.
