State-owned entities India Infrastructure Finance Company (IIFCL) and Power Finance Company (PFC) are struggling to get a bigger share of the household savings in the ongoing tax-free bond offerings. Both are yet to achieve the retail subscription target of 40% of the overall issue size. The issues are offering a few basis points lower rate of interest in select maturities compared with the earlier ones. Also, with a gush of issues having already hit the market, investor appetite has waned.
"Retail investors have already put in their money in the previous issues like those of REC and NHPC," said Anil Rego, CEO and founder, Rights Horizons, a Bangalore-based advisory firm. "Liquidity is a factor here. But a higher rate of interest can be a way of getting them back into tax-saving bond investment."
The IIFCL issue, scheduled to close on October 31, garnered around Rs 515 crore till Monday against the targeted Rs 1,000 crore, or 40% of the overall issue size of Rs 2,500 crore. But the core issue size is Rs 500 crore, with an oversubscription option of Rs 2,000 crore, aggregating to Rs 2,500 crore. In total, the issue has garnered Rs 1,111 crore, surpassing the core size by more than two times. The company, according to a person with direct knowledge of the development, held a meeting on Monday to decide on a possible early closure. But it has decided to wait for the RBI monetary policy to be announced on Tuesday before taking a call on the issue.
Similarly, the PFC issue is expected to run till November 11. It has raised Rs 1,293 crore so far compared with the targeted Rs 1,550 crore. The core issue size here is at Rs 750 crore with an option of over subscription of up to Rs 3,876 crore. It has raised Rs 4,080 crore so far.
"If there is a sharp repo rate hike of more than 25 basis points, future issues are likely to offer higher rate of interest," said Ashish Agarwal, executive director at AK Captial. "Then, both institutional and HNI investors will tend to wait for some time to invest in these bonds.
Retail investors who generally do not take much cognisance of interest rate movements will follow them.
Markets have already factored in a 25 bps rise in repo and a similar cut in MSF," he said.
A retail investor can invest up to Rs 10 lakh in tax-free bonds. PFC offers interest rate of 8.43% annually on 10-year bonds, 8.79% on 15-year issue, and 8.92% on 20-year papers.
IIFCL pays 8.26%, 8.63% and 8.75%, respectively, for the same tenures. In September, Rural Electrification Corporation (REC) had hit the market offering 8.26% for 10-year, 8.71% for 15-year and 8.62% for 20-year maturities. NHPC offered 8.43% on the 10-year instruments, 8.79% on 15-year papers and 8.92% for 20 years.
"Retail investors have already put in their money in the previous issues like those of REC and NHPC," said Anil Rego, CEO and founder, Rights Horizons, a Bangalore-based advisory firm. "Liquidity is a factor here. But a higher rate of interest can be a way of getting them back into tax-saving bond investment."
The IIFCL issue, scheduled to close on October 31, garnered around Rs 515 crore till Monday against the targeted Rs 1,000 crore, or 40% of the overall issue size of Rs 2,500 crore. But the core issue size is Rs 500 crore, with an oversubscription option of Rs 2,000 crore, aggregating to Rs 2,500 crore. In total, the issue has garnered Rs 1,111 crore, surpassing the core size by more than two times. The company, according to a person with direct knowledge of the development, held a meeting on Monday to decide on a possible early closure. But it has decided to wait for the RBI monetary policy to be announced on Tuesday before taking a call on the issue.
"If there is a sharp repo rate hike of more than 25 basis points, future issues are likely to offer higher rate of interest," said Ashish Agarwal, executive director at AK Captial. "Then, both institutional and HNI investors will tend to wait for some time to invest in these bonds.
Retail investors who generally do not take much cognisance of interest rate movements will follow them.
Markets have already factored in a 25 bps rise in repo and a similar cut in MSF," he said.
A retail investor can invest up to Rs 10 lakh in tax-free bonds. PFC offers interest rate of 8.43% annually on 10-year bonds, 8.79% on 15-year issue, and 8.92% on 20-year papers.
IIFCL pays 8.26%, 8.63% and 8.75%, respectively, for the same tenures. In September, Rural Electrification Corporation (REC) had hit the market offering 8.26% for 10-year, 8.71% for 15-year and 8.62% for 20-year maturities. NHPC offered 8.43% on the 10-year instruments, 8.79% on 15-year papers and 8.92% for 20 years.
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