A higher coupon rate lured retail investors to buy Rural Electrification Corporation's (REC) tax-free bonds and helped the public sector company to raise R3,500 crore three days before the issue was scheduled to close.
The issue was originally planned to close on September 16, but it closed on Friday as shelf limit of the issue was reached. The issue size of the offering was R1,000 crore, with an option to retain up to R3,500 crore.
The tax-free coupon rates offered by the company were 8.01%, 8.46% and 8.37% for 10 years, 15 years and 20 years, respectively. The coupon rate for retail investors are 25 bps higher in all tenures. According to the tax-free bond issue terms, 40% of the bonds were reserved for retail customers and REC saw about R1,500 crore being lapped up by retail customers. Meanwhile, companies and other institutional investors bought over R850 crore worth of these bonds and high networth individuals bought close to R750 crore.
This year, tax-free bonds are expected to fare better that last year as interest rates being offered are higher, since the benchmark G-Sec has climbed as much as 150 bps since July 15. After crossing 9%, the 10-year yield is now hovering around 8.5%.
In FY13, nine tax-free bond issuers offered coupon of 6.86%-7.08% and 7.02%-7.19% for 10 years and 15 years. In FY12, five companies offered tax-free bonds at 8.2% and 8.3% for 10 and 15 years' term, respectively.
The government has allowed 13 public sector institutions to raise R48,000 crore through tax-free bonds in 2013-14 to meet their infrastructure investment needs.
REC’s stock closed up 3% at Rs 198 on Friday on BSE.