Close on the heels of the successful launch of tax free bonds by HUDCO, the Indian Railway Finance Corp (IRFC) and the National Housing Bank (NHB) have announced their intentions to issue tax free bonds aggregating over Rs. 10,000 crore.
While the IRFC issue of around Rs. 8,663 crore will open on January 6, 2014, NHB has announced that its issue aggregating Rs. 2,100 crore will open to the public from Monday next week or December 30 2013. The tax free bonds have a coupon between 8.23 and 8.65 per cent per annum and are long-term investments for tenures of ten, 15 and 20 years.
Tax free bonds are fixed income instruments that pay an annual interest rate linked normally to the long term interest rate on government securities.
These instruments can be only issued by a certain category of companies and institutions that are government owned.
It is attractive for investors as the interest income is not taxable and the bonds are for a long tenure typically 10 years and over. The bonds are an efficient means of raising long term funding required for investment in sectors like infrastructure projects, housing and railways.
Both companies have filed shelf prospectus with market regulator Sebi for these tax-free and secured non-convertible bonds which allows them to raise the bonds in various tranches within the year.
Housing and Urban Development Corporation (Hudco), which opened its issue in the first week of December has already received a good response. It has already raised Rs. 2,010 crore, which is subscribed over four times from the basic size of Rs. 500 crore, said analysts.
IRFC said that it plans to issue tax-free, secured, redeemable, non-convertible bonds of face value of Rs. 1,000 for an amount of Rs. 1,500 crore with an option to retain oversubscription up to Rs. 7,163 crore aggregating Rs. 8,663 crore in the fiscal 2014.
The funds raised through this issue will be utilised by IRFC towards financing the acquisition of rolling stock which will be leased to the Ministry of Railways in line with present business activities.