The Rs 3,000-crore, tax-free bond issue of Rural Electrification Corporation (REC) was fully subscribed on the first day itself, thanks to a huge demand from institutional and wealthy investors.
The issue on Wednesday received bids worth nearly Rs 4,000 crore, as against the issue size of Rs 3,000 crore, said merchant bankers handling the issue. The qualified institutional buyers (QIB) category received bids worth Rs 2,300 crore, as against Rs 1,500 crore on offer. The high net worth individual (HNI) category saw bids worth Rs 1,500 crore, as against reservation of Rs 750 crore. Half the issue is reserved for QIBs and the remaining equally divided between HNIs and retail investors.
Retail demand, however, remained sluggish. Only about Rs 80 crore worth of bids came, as against the quota of Rs 750 crore. Merchant bankers blamed confusion over the retail investment limit for the subdued response. They said demand could pick up in this category once the refunds for the Multi Commodity Exchange’s initial public offering (IPO) happened.
| CHARGED UP |
| * The issue has received bids worth Rs 4,000 crore against issue size of Rs 3,000 crore |
| * QIB category received bids worth Rs 2,300 crore as against Rs 1,500 crore on offer |
| * HNI category saw bids worth Rs 1,500 crore as against reservation of Rs 750 crore |
| * Retail demand remained sluggish, with only Rs 80 crore worth of bids as against the quota of Rs 750 crore |
| * Merchant bankers blamed confusion over the retail investment limit for the subdued response |
The Central Board of Direct Taxes (CBDT) had decided last month to reduce the retail investment cap from Rs 5 lakh to Rs 1 lakh for the REC bond sale. It later took a U-turn and reinstated the retail limit to Rs 5 lakh.
Bankers said the issue had closed for QIB and HNI subscription, while the retail category will remain open till March Monday. The rules say if the retail quota remains under-subscribed, the balance gets allocated to the other categories.
“Even if retail doesn't come the issue has been sold,” said Ajay Manglunia, senior vice-president, Edelweiss Securities. “REC might benefit if they don't get full retail subscription, as they have to pay a higher coupon and brokerage commission for the retail segment.”
REC is 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 QIBs, HNIs 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, respectively.
Five companies, including the REC issue, have successfully raised the desired Rs 30,000 crore through tax-free bonds in 2011-12.
The income-tax department in October had given its nod for NHAI, IRFC, Hudco and PFC to cumulatively issue tax-free bonds to the tune of Rs 30,000 crore during 2011-12. As IRFC raised only Rs 7,000 crore as against the sanctioned Rs 10,000 crore , the government asked REC to use the unutilised Rs 3,000 crore.
These tax-free infrastructure bonds were introduced by the government to encourage flow of funds to the infrastructure sector.
