TAX-FREE BONDS STILL AWAIT NOTIFICATIONThe Budget for this year had said
the issue of Rs.60,000-crore tax-free bonds would be allowed, but, with
just five months left in the financial year, the notification on this
is yet to be issued. Last year, only five issuers were given the window
to come out with tax-free bonds, totalling Rs.30,000 crore, and the
finance ministry had notified the exemption in September 2011. Now,
experts and officials anticipate too many issuers arriving in the market
around the same time to raise double the amount. According to H D
Khunteta, a retired director, finance, at Rural Electrification
Corporation, "With all the issuers coming to the market over the five months, it is expected there would not be appetite In the market for all the issues. There are chances of under subscription." According to a senior executive in a merchant banking company, "Had it been spread over a 1onger period, the tax-free bonds would (all) have raised money." The National Highways Authority of India(NHAI) had raised Rs.10,000 crore through such bonds last year. "Last year, there was a perception that the norms to subscribe to tax-free bonds were quite liberal. Therefore, the finance ministry might tighten the norms this year,'' said a senior NHAI official. Though the highway authority is the biggest infrastructure spender along with the railways, it is not in a hurry to raise funds now. "Though we are comfortable, we expect the finance ministry (to) keep into consideration that the markets are quite uncertain and also that the interest rate on the bonds is better than the prevalent interest rates in the market," said the official. The government entities are also awaiting the October 30 monetary policy review announcement "The coupon rate and yields will be correlated to the rate changes. The coupon rate should be attractive for investors and the railways should also be able to service this component,'' said a senior executive in the Indian Railway Finance Corporation, which raised Rs.7,000 crore last year through this route. With the introduction of the application supported by blocked amount (Asba) facility for making applications in debt issues (confined so far to equity issues), the money will be debited from the accounts of investors only when the allotments would be done. More, The Security and Exchange Board of India (Sebi) has allowed online uploading of applications through trading members of the stock exchanges. So, retail participation was bound to be higher this time as compared to last time, an executive in merchant banking added. More, with all the issuers not having an AAA-rating, it might be difficult for them to raise money in the market and they might require an implicit guarantee from the government Another dampener expected is that the finance ministry notification can specify a ceiling on the coupon rate for public placement to encourage retail investors-50 basis points less than the G-Sec rate for investments below 10 lakh, and 100 bps less than the G-Sec rate for all other investments. – www.business-standard.com
Corporation, "With all the issuers coming to the market over the five months, it is expected there would not be appetite In the market for all the issues. There are chances of under subscription." According to a senior executive in a merchant banking company, "Had it been spread over a 1onger period, the tax-free bonds would (all) have raised money." The National Highways Authority of India(NHAI) had raised Rs.10,000 crore through such bonds last year. "Last year, there was a perception that the norms to subscribe to tax-free bonds were quite liberal. Therefore, the finance ministry might tighten the norms this year,'' said a senior NHAI official. Though the highway authority is the biggest infrastructure spender along with the railways, it is not in a hurry to raise funds now. "Though we are comfortable, we expect the finance ministry (to) keep into consideration that the markets are quite uncertain and also that the interest rate on the bonds is better than the prevalent interest rates in the market," said the official. The government entities are also awaiting the October 30 monetary policy review announcement "The coupon rate and yields will be correlated to the rate changes. The coupon rate should be attractive for investors and the railways should also be able to service this component,'' said a senior executive in the Indian Railway Finance Corporation, which raised Rs.7,000 crore last year through this route. With the introduction of the application supported by blocked amount (Asba) facility for making applications in debt issues (confined so far to equity issues), the money will be debited from the accounts of investors only when the allotments would be done. More, The Security and Exchange Board of India (Sebi) has allowed online uploading of applications through trading members of the stock exchanges. So, retail participation was bound to be higher this time as compared to last time, an executive in merchant banking added. More, with all the issuers not having an AAA-rating, it might be difficult for them to raise money in the market and they might require an implicit guarantee from the government Another dampener expected is that the finance ministry notification can specify a ceiling on the coupon rate for public placement to encourage retail investors-50 basis points less than the G-Sec rate for investments below 10 lakh, and 100 bps less than the G-Sec rate for all other investments. – www.business-standard.com
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