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Public sector companies struggle to raise capital through tax-free bonds
March, 01st 2014

Three-state owned companies have raised only a fraction of their target amount through last tranche of tax-free bonds on the first day of subscription as the market is already crowded with many issuances leading to over-supply ahead of financial year-end.

The Indian Railway Finance Corporation or IRFC has raised only Rs 239 crore or 8.16% of their total issue size at Rs 2,916 crore including a core size at Rs 1,500 crore, according to data available on BSE website.

The Rural Electrification Corporation or REC has mopped up about Rs 154 crore or 14.50% as against Rs 1,060 crore (including a core issue at Rs 250 crore). Both REC and IRFC are AAA-rated.

The issue size is relatively smaller at Rs 286 core for the Housing and Urban Development Corporation or HUDCO with no option for oversubscription. The AA+ rated company has collected about Rs 63 crore or 22% of the total size on the first day.

The interest rates offered are in the range of 8.19-8.98% in three maturity buckets: 10-15-20 year for both retail and institutional customers. IRFC did not offer 20-year maturity while HUDCO being a lower rated paper is offering the highest rate at 8.98% for 15-year.

Earlier, ET reported that four state-owned companies were going to raise around Rs 5,250 crore cumulatively through tax-free bonds. National Housing Bank will be the fourth issuer whose public issue is expected to open next week for Rs 1,000 crore.

Almost two weeks ago, Indian Renewable Energy Development Agency (Ireda), Ennore Ports and India Infrastructure Finance Company (IIFCL) already opened for subscription, and are likely to mop up about Rs 4,300 crore collectively.

Ireda and IIFCL, have so far raised Rs 723 crore as against a total size of Rs1,000 crore and Rs 829 crore compared with a targeted Rs2,823 crore. "The interest rate is at its peak in the 15-year bucket so far. One can have the safety of investment in these instruments," said an investment banker, who did not wish to be identified.

 
 
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