Railway Corp, NHB to issue tax-free bonds worth over Rs10,000 cr

Following the successful launch of tax-free bonds by state-owned HUDCO, the Indian Railway Finance Corp (IRFC) and the National Housing Bank (NHB) have announced schemes to issue similar bonds aggregating over Rs10,000 crore.

IRFC said in the prospectus filed with the Securities & Exchange Board of India that the issue of tax-free and secured non-convertible bonds, worth around Rs8,663 crore will open on 6 January and close on 20 January.

Meanwhile, NHB has announced that its issue aggregating Rs.2,100 crore will open to the public from Monday, 30 December 30.

The tax-free bonds have a coupon between 8.23 and 8.65 per cent per annum and are long-term investments for tenures of ten, 15 and 20 years. These are fixed income instruments that pay an annual interest rate linked normally to the long term interest rate on government securities.

They only be issued by a certain category of companies and institutions that are government owned.

It is attractive for investors as the interest income is not taxable and the bonds are for a long tenure, typically 10 years and over. The bonds are an efficient means of raising long-term funding required for investment in infrastructure sectors like housing and railways.

Both companies have filed shelf prospectuses with SEBI for these bonds, allowing them to raise the funds in various tranches within the year.

Housing and Urban Development Corporation (HUDCO), which opened its issue in the first week of December, has already received a good response. It has raised Rs2,010 crore, which is subscribed over four times from the basic size of Rs500 crore.

The funds raised through this issue will be utilised by IRFC towards financing the acquisition of rolling stock which will be leased to the Ministry of Railways, in line with its present business activities.