Money galore: Seven PSU firms to issue tax-free bonds to mop up Rs 40,000 cr

IT will money galore for the investors as the government on July 9 allowed seven state-owned PSUs to raise Rs 40,000 crore through tax-free bonds.

The announcement of allowing issuance of bonds where interest income will not be taxed was made in the budget.

These tax free bonds...

are expected to hit the market in the second half of FY16.

In his budget speech finance minister Arun Jaitley had said that tax-free bonds would be allowed for projects in rail, road and irrigation sectors.

However, in the final notification even power sector and low-cost housing have been allowed tap this source of funds.

According to a Central Board of Direct Taxes (CBDT) notification, the National Highway Authority of India (NHAI) has been allowed to raise Rs 24,000 crore from these bonds. Indian Rail Finance Corporation (IRFC) has been allowed to borrow up to Rs 6,000 crore.

Housing and Urban Development Corporation (HUDCO) will issue bonds amounting to Rs 5,000 crore. Indian Renewable Energy Development Agency (IREDC) has been allowed to collect Rs 2,000 crore.

Power Finance Corporation, NTPC and Rural Electrification Corporation have been allowed to raise Rs 1,000 crore each.

The government has said that the tax-free bonds that are issued under this route should have a maturity of 10 years, 15 years and 20 years.

At least 70% of the money raised through such bonds will have to be through public issue of which 40% should be reserved for retail investors.

“The ceiling coupon rate for ‘AAA’ rated issuers shall be the reference G-sec rate less 55 basis points in case of retail individual investors (RIIs) and reference G-sec rate less 80 basis points in case of other investor groups,” according to the CBDT notification.

The interest that the issuers can pay to institutions is less than what a retail investor can be offered.

The government has also said that the entities using the tax-free bond window to raise funds will be required to submit to the Finance Ministry a detailed statement on its repayment capacity.