Port sector: Tax-free bond issues get muted response

Our Bureau Mumbai | Updated on March 22, 2013 Published on March 22, 2013

Weak market conditions, low retail participation and the late entry into the market, have resulted in poor investor response to the public issue of tax-free bonds of ports sector .

On offer were tax-free bond issuances of two major ports and the largest dredging company in the country, with a combined target of raising Rs 3,500 crore.

However, due to a muted market response, the public port sector enterprises could raise only a mere Rs 196 crore or 5.6 per cent of the total offering.

The largest of the three issues was of India’s largest container port, which set out to raise a total of Rs 2,000 crore (including oversubscription). The issue, which opened on February 28, could amass only Rs 41.68 crore of the total amount till March 19, the day when the issue closed.

Vizag-based, Dredging Corporation of India and Chennai-based Ennore Port Trust had set out to raise a total of Rs 500 crore and Rs 1,000 crore, respectively. However, the two could only raise Rs 59 crore and Rs 95.16 crore , respectively.

Poor coupon rates

Poor coupon rates and late entry in the bond market led to a very poor response from the market, a senior compliance manager of one of the issuing companies said requesting anonymity.

The overall market perception is weak and since it is the financial year end, there is less money with the retail and corporate investor, said an analyst.

The bond issuances did not attract enough participation as retail investor stayed off because of poor coupon rates, he said. “The Finance Ministry had asked us to keep the coupon rates at least 100 basis points less than the benchmark rates. So, the low coupon rates put off investors,” a top official of one of the two ports said.

Also, there was confusion in the minds of investor if they could invest below the bank rate. A clarification from the Government came a little too late in the day (March 15), said the official who requested anonymity.

The highest coupon rate for a retail investor was offered by the Ennore Port Trust at 7.51 per cent for a 10-year bond holder and 7.67 per cent for a 15-year bond holder. For an institutional investor, the port offered 7.01 per cent and 7.17 per cent for a 10-year and 15-year coupon, respectively.

“There is less retail participation because post tax returns from such bond issuances is not as attractive as pre-tax returns from other instruments,” Moses Harding, Head, Economic and Market Research, said.

Published on March 22, 2013
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