Top PSUs May Get to Sell Re­tail Taxable Bonds

Is­sues likely to of­fer a spread over yield of govt se­cu­ri­ties to at­tract in­vestors

The Economic Times - - Companies: Pursuit Of Profit -

Mum­bai: Inafirst,the­gov­ern­ment may al­low top-rated cen­tral govern­ment-owned­com­pa­niestosell­re­tail taxable bonds. The move should of­fer in­ter­est rates higher than bank or pub­lic sav­ings de­posits.

“Modal­i­ties are yet to be fi­nalised, but bond is­suers are usu­ally ex­pected to go pub­lic,” eco­nomic af­fairs Sec­re­tary Shak­tikanta Das told ET, puttingth­e­li­don­all­mar­ket­spec­u­la­tions. “They may also be al­lowed a spread over and above the GSec yield (to of­fer at­trac­tive in­ter­est rate), although the mat­ter is to be dis­cussed in de­tail,” he said.

Last Fe­bru­ary in the Bud­get, fi­nance min­is­ter Arun Jait­ley per­mit­ted govern­ment-owned en­ti­ties in­clud­ing the Na­tional High­way Au­thor­ity of In­dia, Power Fi­nance Corp, Ru­ral Elec­tri­fi­ca­tion Corp, Na­tional Bank for Agri­cul­ture and Ru­ral De­vel­op­ment, In­dian Re­new­able En­ergy De­vel­op­ment Agency and In­dia Wa­ter Au­thor­ity to raise ₹ 31,300-crore via bond sales in2016-17,amoveaime­dataug­ment­ing in­fras­truc­ture spend­ing fur­ther.

Ru­mour­swere­a­gogth­atthey­were an­other se­ries of tax-free bonds, a su­per-hit in­vest­ment bet among re­tail and wealthy in­vestors last fi­nan­cial year. Some thought, th­ese could be in­fras­truc­ture bonds, where in­vest­ment of up to ₹ 20,000 only was el­i­gi­ble for ad­di­tional tax de­duc­tion.

“Th­ese are ad­di­tional top-up bonds, not tax-free bonds. Is­suers will go to the mar­ket only when they are about to ex­haust Bud­get al­lo­ca­tions,” Das said.

Ac­cord­ing to Das, tax-free se­cu­ri­ties have the ten­dency to dis­tort the mar­ket. The in­ter­est rate struc­ture gets up­set as those se­cu­ri­ties of­fer higher rates in rel­a­tive terms.

Dur­ing 2010-11, in­fras­truc­ture bonds were in­tro­duced, but the scheme had fallen flat as the in­vest­mentlim­it­wastoos­mall­for­bor­row­ers to raise large sums while in­vestorstoocould­not­gain­large­ab­so­lute in­ter­est in­come.

If a bond is priced af­ter adding a mark-up over and above the sov­er­eign bench­mark yield it nor­mally at­tractsin­vestors.Thosec­om­pa­nies are con­sid­ered quasi-sov­er­eign.

Ac­cord­ing to three large in­vest­ment bankers, the spread should log­i­cally be 50-75 ba­sis points to at­tract re­tail in­vestors amid fall­ing in­ter­est rates. A 8.25% or higher coupon should be lu­cra­tive enough. A ba­sis point is 0.01%.

“If the­gov­ern­ment­no­ti­fies(pub­lic sale) fi­nally, this will be first time top-rated cen­tral gov­ern­men­towned en­ti­ties go­ing pub­lic for taxable bond sales,” said Ajay Man­glu­nia, ex­ec­u­tive VP (fixed in­come) at Edel­weiss Fin. “If the pro­posed bonds are of­fered with a spread… those should at least be higher than bank de­posits amid fall­ing in­ter­est rates.”

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