Select Your Language

7 PSUs to Raise Colossal 40 K Crores

The startling news came from the Union Government on this Wednesday thereby allowing seven of the state owned entities like NHAI, IRFC and NTPC to raise Rs 40,000/-, the National Highways Authority Of India has been permitted to raise Rs 24,000/- crores, Indian Railways Finance Corporation Rs 6,000/- crores, Housing and Urban Development Corporation has been allowed to raise Rs 5,000/- crores and the Indian renewable Energy Development Agency Rs 2,000/- crores, the NTPC, RECL and Power  Finance Corporation can issue tax free bonds of Rs 1000/- each.

Even the retail investor has now got a chance to earn higher interest in the declining rate regime as the finance ministry has chalked out top 7 state owned companies to sell the tax free bonds in order to raise 40, 000 crores during this fiscal year, that is to say an investor can earn as high as 7.5% as of now by merely subscribing to those bonds having 10, 15 and 20 years maturities.

As such the tax is not payable on the interest earned on these bonds thereby making them all the more ever attractive as compared to the tax debt instruments. The retail investors which include HUFs and NRIs investing in the repatriation basis can invest up to Rs 10, 00000/- in such bonds, in these bonds those who are investing in higher amounts will be classified as HNI clients and besides the retail investors (RILs), the qualified institutional buyers, the corporate, trusts, partnership firms, limited liability partnerships, legal entities and the regional rural banks would be eligible to subscribe these bonds.

This happens to be a very attractive opportunity especially for the retail investors who can lock in for the duration of 10 to 20 years at higher interest rate with the tax efficiencies that too in a declining interest rate scenario.

A triple A rated issuer is eligible to sell the bonds to the retail investors at a rate which is 55 basal points lower than the similar maturity government bond yields, a basal point (bps) is 0.01% while any AA+ rated entities like HUDCO can offer another additional 10 bps, on the other hand any AA-ve rated entities will sell the bonds paying additional 20 bps. This implies that going by the incumbent benchmark yield on a yearly basis the retail investors can expect to churn a healthy 7.45% interest rate yearly.

While HUDCO will pass on to you little more than 7.5% tax free bonds but of course with a little less secondary market liquidity.

The issuances are in the offing and may be rolled out soon, where as Rs 49, 200 crores worth of the tax free bonds were sold in the year 2013-14 with high yields which were offered in the range of 8.75-9% range.

The retail investors it appears have a bon appetite who are getting this opportunity after quite a long time as the interest rates ranging anywhere between 7-8% is pretty healthy and alluring too especially for those investors who are pitching in for the investment for long period. The issuers may go in for private placement options as well in case of the institutions.

1) NHAI:- National Highway Authority Of India which is operational since February 1995, The authority is mandated to survey, develop, maintain, and manage the national highways and any other highways, construct offices, workshops, establish and maintain hotels, motels, restaurants,  the highways, construct residential buildings and even townships for its employees it is entrusted to by the government of India.

2) IRFC:- Indian Railway Finance Corporation Limited, founded in 1987 is nothing but a finance arm of the Indian railways which is involved in raising the financial resources for the expansion and running of the Indian railways through the capital markets and other borrowing facilities.

3) HUDCO: - Housing And Urban Development corporation limited is a government owned corporation and one of the public sector undertakings wholly owned by the Union Government. It is mandated to construct affordable building carrying out the urban development. HUDCO was incorporated in the 25.04.1970 and is under the administrative control of Ministry Of Housing And Urban poverty Alleviation.

4) IREDA:- Indian Renewable Energy Development Agency, it is a Public Limited Government Company established in 1987 under the administrative control of Ministry Of New And Renewable Energy to develop and extend the financial assistance for the renewable energy, conservation projects with the motto that the Energy For Ever. To give financial support  to the specific projects and schemes generating electricity or energy through new and renewable sources and conserving energy through energy efficiency, and to increase the share of the IREDA’s share in the renewable energy sector by ways of innovative financing

5) PFC:- The Power Finance Corporation Limited, a government undertaking setup in July 1986 is a financial institution dedicated to the power sector financing and committed integrated development of the power and associated sectors by channelizing the resources and providing financial, technological and managerial services for ensuring the development of economic, reliable and efficient systems and institutions.

6) REC:- Rural Electrification Corporation Limited is a leading public infrastructure finance company in the power sector involved in the financing and promoting the rural electrification projects across India since 1969.

7) NTPC: - The NTPC is a Maharashtra company in May 2010 India’s largest dominant energy conglomerate with roots way back in 1975 and now ranked 431st in Forbes Global 2000 ranking of the world’s biggest companies which is dedicated to accelerate power development in India via fossil fuels it has forayed into generating electricity through hydro, nuclear, and other renewable energy sources. With diversified fields of consultancy, power trading, providing training to the power professionals, rural electrification, ash utilization and coal mining as well.

One can also sell bonds to them through private placements instead of public but the limit is of 30% of the allotted size.  The good news is that even the non resident Indians (NRIs) can also invest in both the repatriation or non repatriation basis and the pre tax returns would be 11% for the tax free bonds. This appears to be once in a life time opportunity and this is one bus which is not to be missed.