PSUs entities to raise Rs 40,000 crore via tax free bonds

09 Jul 2015 Evaluate

Government has permitted seven PSUs to raise Rs 40,000 crore in the current fiscal through tax free bonds for development of infrastructure. A notification issued by the Central Board of Direct Taxes (CBDT) said that National Highways Authority of India (NHAI) has been permitted to raise Rs 24,000 crore, Indian Railways Finance Corporation (IRFC) will raise Rs 6,000 crore, Housing and Urban Development Corporation (HUDC) is permitted to raise Rs 5,000 crore. Besides, Indian Renewable Energy Development Agency Rs 2,000 crore, NTPC Rs 1,000 crore, Rural Electrification Corporation Rs 1,000 crore and Power Finance Corporation Rs 1,000 crore.

The ceiling coupon rate for 'AAA' rated issuer of tax free bonds has been fixed 55 basis points below the government bond yields for retail investors and for other investors 80 basis points. The coupon rate for below 'AAA' rated bonds could go up to 20 basis points above the rates offered for the bonds with highest rating .If the coupon rate of 10-year government paper is 7.72%, that would mean the coupon rate for tax free bonds of the same tenure would be 7.17% (it could be around 7.5%-8% for 15-year and 20-year tax free bonds depending on issuer's rating).

The companies have to raise 70% of the issue through public offer, out of which 40%have to be reserved for retail investors and the remaining can be offered through private placement route. Retail investors which include HUFs and NRIs can invest up to Rs 10 lakh in such bonds. The investors who invest high amount will be classified as high net worth individuals (HNIs). Besides, retail individual investors (RIIs), qualified institutional buyers, corporate, trusts, partnership firms, limited liability partnerships, co-operative banks, regional rural banks and other legal entities and high networth individuals (HNIs) would be eligible to subscribe the bonds.

An investor can earn as high as 7.3-7.5 % as of now by subscribing to these bonds with 10-15-20 year maturities and the interest rates are to be decided with reference to the rates of government securities. The minimum denomination for these bonds can vary from Rs 1,000 to Rs 5,000.

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