IFR-Tax-free bond sales in India begin to struggle

Last Updated: Tue, Nov 20, 2012 04:10 hrs

SINGAPORE, Nov 20 (IFR) - Three state-owned companies - India Infrastructure Finance Co (IIFCL), Rural Electrification Corp (REC) and Power Finance Corp(PFC) - raised INR10.85bn (USD197m) from their respective tax-free bond sales yesterday. This fell short of the intended total of INR15bn.

With nine companies allowed to issue a total of INR535bn of tax-free bonds this fiscal year, bankers feel there is unlikely to be enough demand for the entire potential offerings if the investor base is not widened to include more corporates.

PFC, which missed its target of raising INR5bn by just garnering INR2.85bn from its first such sale for this financial year, points to a likely possibility of these tax-free sales turning damp squibs sooner than expected.

IIFCL, which already raised INR5bn from a tax free sale last week, managed to get INR3bn from the latest offering, while REC got its INR5bn.

State-run Oil India was again the biggest investor in REC's sale with its INR2bn investment, while Allahabad Bank put in a similar amount in PFC's bond offering.

The trio were raising up to INR5bn each - the maximum allowed per issue for such sales under the private placement route. The 10-year and 15-year bonds offered by these companies will pay coupons of 7.21% and 7.38%, respectively.

IIFCL is also offering a 20-year tranche at 7.41%. Banks were asked to bid at a premium over the par value of the bonds. IIFCL's bonds last week were bid at 100.01.

Bankers are also unhappy that issuers are not leaving anything on the table for arrangers. Compared with last year when arrangers raked in fees of up to INR1 per amount arranged by them, this year, the fees are slashed to up to INR0.05.

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