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