The success of the tax-free bond issue by the National Highways Authority of India (NHAI) has been repeated by Power Finance Corporation (PFC)’s tax-free bond issue of Rs 4,033 crore, which has been subscribed 2.4 times. The power sector lender received subscriptions worth Rs 9,791 crore within three days since the opening of the issue.
“The qualified institutional investor and high net worth individual (HNI) categories have been over subscribed. However, there is a lot of scope to accommodate retail investors,” said Satnam Singh, chairman and managing director, PFC.
The government-controlled non-banking financial company received applications worth Rs 7,118 crore, against Rs 2,016 crore reserved for the qualified institutional placement category. The issue was also over-subscribed in the HNI segment and the applications received stood at Rs 2,397 crore, against Rs 1,008 crore reserved for the category.
The bonds issued by PFC carry a coupon of 8.2 per cent and 8.3 per cent for maturity periods of 10 and 15 years, respectively. NHAI had offered 8.2 per cent and 8.3 per cent for similar tenures.
“However, applications received in the retail segment amounted to Rs 277 crore, against Rs 1,008 crore reserved for retail investors,” a
PFC spokesperson told Business Standard. Fifty per cent of the issue is reserved for institutional investors and 25 per cent each for HNIs and retail investors. The bonds are rated ‘AAA’ by ICRA and Crisil.
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The second tranche of PFC’s tax-free bond issue opened on December 30. The size of the issue is Rs 1,000 crore, with an option to allot shares worth Rs 3,033 crore in case of oversubscription, taking the issue size to Rs 4,033 crore. In the first tranche, the power sector lender raised Rs 967 crore. The company has been allowed to raise up to Rs 5,000 crore by the government in 2011-12.
Commenting on the lukewarm response by retail investors, the spokesperson said, “Despite advertising, the awareness among retail investors about the product remains low. We can close the issue after three days by giving a notice a day before….But we may keep the issue open till January 16 to allow more retail investors to subscribe.”
Tax-free bonds are those in which the interest income from the instruments is not taxed. Infrastructure-related firms are able to garner much-needed capital for on-lending and project execution through such issues.
Other infrastructure companies that have secured the government’s approval to raise money include Indian Railways Finance Corporation (IRFC) and Housing Urban Development Corporation (Hudco). The total amount to be raised by these companies is Rs 30,000 crore. Hudco and PFC are allowed to raise up to Rs 5,000 crore each, while NHAI and IRFC can raise up to Rs 10,000 crore each.