The finance ministry has called for a meeting with heads of the seven public sector units (PSUs) that have been permitted to issue tax-free bonds this fiscal year, sources have confirmed with FE.

This is a general review meeting to understand the market response to tax-free bonds and how the companies are planning to move forward in regard to the remaining quota allotted to them, they said.

“We will present what we have done so far in this segment and our plans to tap the market soon to raise the rest of the quantum of funds through tax-free bonds,” a top executive at one of the seven PSUs told FE.

The letter issued by the ministry said the meeting is scheduled to be chaired by the secretary of the department of economic affairs to review the progress of tax-free bonds. The meeting is scheduled to be held on November 9 in North Block.

In FY16, National Highways Authority of India (NHAI), Indian Railway Finance Corporation (IRFC), Housing and Urban Development Corporation (HUDCO), Indian Renewable Energy Development Agency (IREDA), Power Finance Corporation (PFC), Rural Electrification Corporation (REC) and NTPC have been permitted to raise a total of R40,000 crore through tax-free bonds.

All seven companies that have been allotted tax-free bonds quota have raised funds through the private placement route while REC, PFC and NTPC have come out with their public issues which were a big success in the market. All three issues received a considerable amount of over-subscription. Companies have to raise at least 70% of their allotted quota through the public issue of tax-free bonds.

Post this, NHAI would be the next in line to come out with the public issue of their tax-free bond issuance, according to bond market experts.
Tax-free bonds had made a comeback this fiscal after remaining absent in FY15. They were introduced in 2011-12 with an overall limit of R30,000 crore to boost infra spending.

In 2012-13, the limit was doubled to R60,000 crore. However, companies just raised R18,000 crore through these bonds which was way below the target. In FY14, the limit was kept at R50,000 crore against which companies borrowed R49,200 crore.