At least six state-owned infrastructure companies are likely to hit the market with two different tax-saving instruments in the next few months.
The first of these may do so by mid-July, according to sources.
Indian Railway Finance Corporation, National Highways Authority of India, Housing and Urban Development Corporation and specified port entities will issue tax-free bonds, where the interest earned would be tax-exempt.
The 2011 Budget had said these four companies would be allowed to raise up to Rs 30,000 crore (Rs 300 billion) between them.
Select infrastructure non-banking finance companies such as Infrastructure Development Finance Company and Rural Electrification Corporation are likely to sell another instrument known as long-term infrastructure bonds, which would qualify for tax exemptions under Section 80 CCF of the Income Tax Act.
Company officials said notifications clearing these issues are expected in the first week of July.
"We are permitted to raise Rs 5,000 crore (Rs 50 billion) in the Budget. We will wait for the notification before taking a final call on the amount and timing," V P Baligar, chairman and managing director, Hudco, told Business Standard.
IRFC plans to raise Rs 8,000 crore (Rs 80 billion) of the allotted Rs 10,000 crore (Rs 100 billion) via public issues.
Some companies are sounding out investors and arrangers already.
Year of debt issues
Rajender Rautela, director, RR Investors Capital Services Ltd, said, "This year is going to be a year of debt, with over Rs 50,000 crore (Rs 500 billion) worth of issues lined up.
"The first to hit the market will be tax-free bonds. If the notification comes in time, the first issue could hit the market in July itself."
At a likely coupon of 7.7-8 per cent, the bonds would attract a number of high net worth and retail investors in the 30 per cent tax
"Working backwards, that is the equivalent of getting 12 per cent interest on a pre-tax basis on a government bond. That's a steal. Many people in the 30 per cent tax slab will go for these bonds," said K P Jeewan, head-fixed income, Karvy Stock Broking.
Long-term infrastructure bonds are likely to hit the market by September.
S J Balesh, senior director-resources, IDFC, said, "This year, there will be a lot of choice for investors in debt instruments, with several issues of tax-free bonds, 80 CCF bonds and non-convertible debentures lined up."
IDFC raised Rs 1,450 crore (Rs 14.5 billion) through long-term infrastructure bonds last year.
According to Balesh, each of these instruments would have a market of their own and not eat into each other.
An REC official declined comment.
Other public finance institutions such as IFCI and Power Finance Corporation are also likely to pitch in with bond issues later this year.
"In order to promote savings and raise funds for infrastructure, an additional deduction of Rs 20,000 (for each individual) for investment in long-term infrastructure bonds was notified by the central government in 2010-11. I propose to extend this window for one more year," the finance minister had said in his budget speech.
Last year, the government had come up with a notification naming the companies eligible to issue these bonds.
A similar notification is expected this year.
"Investments in 80CCF bonds are deductible from taxable income up to a maximum of Rs 20,000 per annum.
"However, the returns are taxable," Suresh Sadagopan of Ladder 7 Financial Advisory Services said.
With equity markets remaining choppy, debt instruments offering stable returns with tax benefits are godsend for investors, say advisors.
In addition to these, a number of private sector firms are lining up NCDs. Shriram Transport Finance is to open a Rs 1,000-crore (Rs 10-billion) NCD issue on Monday.
