India Infrastructure Finance Company (IIFCL) is to set to raise as much as Rs 9,200 crore by issuing tax-free bonds of various tenures, according to two sources involved in the deal. IIFCL will be the third company to launch public issue of tax-free bonds this month and is likely to begin the issue in the last week of December.
Rural Electrification Corp (REC) launched a public issue in early December, while Power Finance Corp's (PFC) tax-free bond sale was launched on Friday.
Tax-free bonds are those where the investor will not be taxed for the interest received from the bonds. But the bonds are subject to capital gains tax.
The size of IIFCL's issue is R1,000 crore with a greenshoe option of R8,200 crore and the company will offer 10-year, 15-year and 20-year bonds.
The company will offer a coupon of 7.69% per annum for 10-year bond, 7.86% per annum for the 15-year paper and 7.90% per annum for the 20-year bond. For all other categories of customers, the coupon rate would be 7.19% per annum, 7.36% and 7.40% for the respective tenures.
Several public sector companies involved in the infrastructure sector have been raising funds through public issues of tax-free bonds to leverage retail savings and the government doubled the target of funds raised to R60,000 crore for 2012-13 in the Union Budget.
Ten public sector infrastructure companies will be able to raise this amount before March 2013.
This included R10,000 crore for NHAI, R10,000 crore for IRFC, R10,000 crore for IIFCL, R5,000 crore for Hudco, R5,000 crore for the National Housing Bank, R5,000 crore for Sidbi, R5,000 crore for ports and R10,000 crore for power sector.
IIFCL had said that it will use the funds raised for financing infrastructure projects.
Merchant bankers said that demand for such tax-free bonds is not strong enough. While REC's issue was fully subscribed, the company raised only R2,100 crore instead of the targeted R4,500 crore. PFC has aimed to raise up to R4,590 crore. Bankers said that following the issuance of IIFCL, HUDCO is looking to launch a public issue of tax free bonds soon.