Top PSUs May Get to Sell Retail Taxable Bonds
Issues likely to offer a spread over yield of govt securities to attract investors
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.”