The last tax-free bond issue of the current financial year will be out of bounds for foreign institutional investors, non-resident Indians and foreign corporate bodies. A long-term infrastructure bond issue by the Rural Electrification Corporation (REC) will be the first public issue to deny these set of investors from participating.
According to people involved in the issue, the move is meant to ensure the processes relating to allotment are completed well before the end of the current financial year on March 31.
“The different documentation required to be completed for these classes of investors is tedious and time-consuming,” says Rajendra Rautela, director, RR Investors Capital Services, a merchant banker for the issue. “It will be difficult to complete this in time for allotment.”
| BARRED FROM APPLYING |
Source: Issue prospectus |
| REPORT CARD | ||
| Bond | Tenure | |
| REC tax-free bonds | 10 years | 15 years |
| Rate of interest Category 1 & 2 | 7.93% | 8.12% |
| Category 3 (Retail - Rs 1 lakh & less) | 8.13% | 8.32% |
| Credit rating | “AAA/Stable” by Crisil, “AAA” by CARE, “AAA” by ICRA & “AAA (Ind)by FITCH | |
| Issue date | March 6 - March 12, 2012 | |
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In addition, the time frame of the offer has also been crunched to just seven days as against more than a month for other such issues.
“Recently, public issues of tax-free bonds were open for more than a week,” points out Ajay Manglunia, senior vice-president, Edelweiss Securities. “Also, issues like NHAI, Hudco and IRFC took more than a month to get listed.”
However, bankers handling the issue believe it will sail through.
Rautela is confident the issue will see good subscription, despite the gag on foreign investors. “Foreign investor participation, as a proportion of the issue, has not been encouraging in the previous tax-free bond issue,” he says. “So, the change may not have a significant impact.”
“Also,” adds Manglunia, “FIIs can only participate in the primary market if they have unutilised investment limits. Most FIIs have already exhausted their limits.”
The overall investment limit for FIIs in corporate debt was raised to $20 billion last year. Within the overall cap, FIIs can buy limits through auctions conducted by the Securities and Exchange Board of India, the market regulator.
The company’s Rs 3,000-crore tax-free bond issue will be open for subscription between March 6 and March 12.
REC will be issuing bonds in two different tenures — of 10 years and 15 years. The 10-year bond will have a coupon of 7.93 per cent for qualified institutional investors, wealthy investors and corporate bodies, while it will be 8.13 per cent for retail investors. As for the 15-year bond, the coupon will be slightly higher at 8.12 per cent and 8.32 per cent.
According to Etica Wealth Management, these bonds are suitable for investors looking for guaranteed returns. “These bonds offer a good opportunity to lock-in money at high interest rates,” it said in a note to investors. “They are very attractive for investors who fall in the highest tax brackets. There is also an opportunity to make capital gains if the Interest rates start to fall in the near future.”
Earlier, the government hadreduced the cap on subscription by retail investors in this issue to Rs 1 lakh, from Rs 5 lakh that was allowed for previous such issues.