IDFC today launched the country's first tax-free infrastructure bonds with a face value of Rs 5,000 each to raise Rs 3,400 crore.
"We will raise up to Rs 3,400 crore through the country's first long-term tax-free infrastructure bonds in one or more tranches. These long term bonds will hit the market on September 30 and will be open for subscription up to October 18, 2010," Infrastructure Development Finance Corporation (IDFC) Managing Director and Chief Executive Rajiv Lall said here while lunching the bonds, which come in four series carrying a maximum of 8 per cent coupon.
Each of these bonds has a face value of Rs 5,000, and an investor can get income tax rebate of up to Rs 20,000 under Section 80CCF-which was introduced in the Finance Act 2010- over and above all other prevailing deductions.
These bonds, which enjoy the highest rating- LAAA--from Icra, can be bought back or redeemed after five years lock-in period or can be traded on the bourses.
On the conservative way of fixing the yield, Lall said, "Our yield rate is capped at par with the interest rate on government securities and hence cannot offer a yield rate that is above what the 10-year Gilts offer. Also, our objective is to encourage the average retail investors who are salaried as it is a tax-free bond, to invest in these bonds."
IDFC was recently accorded the infrastructure finance company status by the Reserve Bank. The new status would allow it to mobilise funds at lower cost and get more flexibility in infrastructure lending.
The FY2011 Budget had said the government would allow infrastructure financiers to offer infrastructure bonds to help fund large infra projects and convert themselves as infrastructure finance companies (IFCs).
Following this, the government had set a panel under HDFC Chairman Deepak Parekh to suggest modalities for this. The panel called for IFCs and also proposed to institute a Rs 50,000-crore infrastructure fund as the first step towards meeting the Plan panel's projected USD 1-trillion infra spending in the 12th Plan.
Following this, the Reserve recently accorded the IFC status to a few NBFCs, and IDFC became one of the first ones to get this label. Under the RBI norms, an IFC can issues bonds up to 25 per cent of its total infrastructure project exposure, besides mobilise funds through ECBs up to 50 per cent of its networth.
Under the RBI regulations, any NBFC with a networth of over Rs 300 crore and above, and those having an exposure of over 75 per cent in infrastructure financing, and enjoying at least an A rating and a capital adequacy ratio of 15 per cent can convert itself into an IFC.
Under this provision, IDFC, which is the largest infrastructure financier in the country, in which the Centre owns 40 per cent stake, will be raising Rs 3,000 crore through external commercial borrowings this fiscal.
Others like LIC and IFCI are likely to tap the market to raise funds. While IFCI has already come out with a bond issue offering 7.9 per cent yield, LIC is said to be finalising its offering.
It can be noted that since 2003, there has been a massive jump in private sector spending in infrastructure sector. Their spend has grown at 23 per cent CAGR. Since 2003, a whopping $453 billion have been spent on infra projects and the government has targeted investment of a massive $1 trillion during the 12th Plan.
