The tax-free bonds of NTPC, the country’s largest power producer, will be open for investment in a fortnight. The firm aims to collect Rs 1,750 crore through this issue.

For investors, the interest income is not taxable throughout the tenure of the bonds. Although NTPC is yet to announce the interest rates on the bonds, they are likely to be in the 8.4-8.9 per cent range (depending upon the tenure), similar to what public sector undertakings that tapped the market recently offered.

“The final interest rates offered on the bonds will be disclosed in the prospectus filed by the company with the Registrar of Companies,” a company official said.

Three tenures

The bonds may be issued in three tenures — 10, 15 and 20 years. The interest rates offered to retail individual investors will be 0.25 per cent more than for investors in other categories.

The maximum application size for retail individual investors is Rs 10 lakh. Normally, 40 per cent of the total issue size is reserved for retail investors.

The tax-free bonds issued by NHPC, PFC, REC and IIFCL got a good response. In fact, some of the issues closed before the scheduled date.

The tax authorities have permitted 12 state-owned companies and National Housing Bank (NHB), an RBI subsidiary, to raise Rs 48,000 crore through tax-free bonds. Among these, IIFCL, Indian Railway Finance Corporation, Hudco, REC, PFC, NHAI, NTPC, NHPC and Indian Renewable Energy Development Agency, apart from NHB, have been allowed to raise Rs 1,000 to Rs 10,000 crore.

These companies can also tap sovereign wealth funds. Up to 30 per cent of the allocated bond size can be raised through private placement to sovereign wealth, pension and gratuity funds. The money mobilised through such tax-free bonds will be deployed in infrastructure projects.

(This article was published on November 17, 2013)
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