IIFCL to raise Rs 5,000 cr via tax-free bonds

After mopping up over Rs 2,500 crore (Rs 25 billion) in the first two days, the state-owned India Infrastructure Finance Company is targeting to raise more than Rs 5,000 crore (Rs 50 billion) through tax-free bonds, which opened on January 19 and will close tomorrow.

IIFCL has come out with a Rs 2,500-crore (Rs 25-billion) issue on a private placement basis with an option to retain an oversubscription of Rs 10,000 crore (Rs 100 billion).

The bond, which was guaranteed by the government, will give a 6.85 per cent tax-free return to investors and have a maturity period of five years.

IIFCL appointed nine merchant bankers to sell the bonds, including IDBI Capital, ICICI Securities, Axis Bank, Allianz, AK Capital, HSBC, Standard Chartered, Citi and Trust Capital.

Institutional investors, including banks, insurance firms and private trusts, have participated in the issue, since the return would be equivalent to a taxable return of 10.3 per cent, that too with zero risk, said the banker. The bond was rated as triple A by all the three leading rating agencies Icra, Fitch and Crisil.

For the second tranche, the unlisted government-owned institution is contemplating a public issue of tax-free bonds in April-May 2009 for retail investors. The size of the public issue is expected to be equal or larger than the current issue, sources said.

"There is a lot of demand from the public," said an investment banker.

"In the current scenario, investors who have burned their fingers in the stock market are looking for alternative investment avenues that needs to be risk-free with reasonable return."

In the two stimulus packages announced by the government, IIFCL is allowed to mop up Rs 40,000 crore (Rs 400 billion) in tax-free bonds.

The government hopes to fast-track infrastructure projects worth Rs 100,000 crore (Rs 1,000 billion) through faster clearances of public-private partnership projects, and ensure their easier financing by way of tax breaks on fund-raising by IIFCL, which will use these funds to refinance bank lending of longer maturity to infrastructure projects, especially highways and port projects.