State-owned companies like IRFC, Hudco and NHAI to offer tax-free bonds of Rs 18,000 crore

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State-owned companies like IRFC, Hudco and NHAI to offer tax-free bonds of Rs 18,000 crore


Yield-hungry investors will have reason to celebrate even after Diwali. Three state-owned companies will offer tax-free bonds of as much as Rs 18,000 crore collectively in the next two to four weeks, giving crestfallen retail investors an opportunity to earn attractive returns over a long period.

Indian Railways Finance Corporation (IRFC), Housing & Urban Development Corporation (Hudco) and National Highways Authority of India (NHAI) will sell tax-free bonds that are at least five times larger than recent issuances, three market sources told ET.

Individuals who could not subscribe to such bonds offered by NTPC, Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) in the past two months are now expected to rush for the fresh series. NTPC, PFC and REC sold bonds worth Rs 700 crore each, which were oversubscribed multiple times.

IRFC will sell tax-free bonds worth Rs 4,532 crore at expected retail interest rates of about 7.30-7.48-7.45 per cent across 10-15-20-year maturities, dealers said. The rates will not be in sharp contrast to what were offered before the latest Reserve Bank of India interest rate cut, although they would be a tad higher than the REC issue two weeks ago.

Tax-free bonds are priced taking into account the average benchmark yields in the past two weeks. Sovereign yields actually have not transmitted the entire 50-basis point RBI reduction.

"Large issue size will help investors to lock in at attractive rates over a long period with tax efficiency," said Ajay Manglunia, head of fixed income at Edelweiss Securities. "Most investors, especially retail, didn't get the desired allotment in taxfree issuances a few weeks ago due to small issue sizes."

Kolkata-based Arun Pal, a 59-year old paediatrician, applied for Rs 2 lakh worth of taxfree bonds and was allotted only Rs 50,000. He plans to invest another Rs 2 lakh after Diwali. "This investment makes sense for me as I will retire in next five years," Pal said.

Hudco is likely to sell aboutRs 3,500 crore of such bonds, while the size would be the biggest for NHAI at aboutRs 10,000 crore.


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