Sovereign wealth funds get nod to invest in tax-free bonds

K. R. Srivats New Delhi | Updated on March 12, 2018 Published on August 12, 2013

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State-owned firms allowed to mobilise up to Rs 48,000 crore this fiscal

The Central Board of Direct Taxes has given its nod for several State-owned entities to mobilise Rs 48,000 crore this fiscal through tax-free bond issuances.

As many as 12 State-owned entities and the National Housing Bank (a subsidiary of the Reserve Bank of India) have been allowed to raise funds through this route, after analysing their need and capacity to raise money in the market.

The tenure of the bonds could be 10, 15 or 20 years.

Retail investors

The salient feature is that at least 70 per cent of the aggregate amount of bonds (for issues of Rs 500 crore or above) issued by each entity should come through a public issue. Also, 40 per cent of such public issues have to be earmarked for retail investors. Under the private placement segment, the Centre has now allowed suitable amounts to be placed with sovereign wealth funds, and pension and gratuity funds without the requirement of going through the book-building route .

This is perhaps for the first time ever that sovereign wealth funds are being allowed to invest in tax-free bonds of Indian issuers. As far as the coupon rates are concerned, there is a ceiling linked to the reference G-sec rates.

Finance Minister P. Chidambaram had in this year’s budget speech specified that the Government would allow some institutions to issue tax-free bonds in 2013-14 up to a total sum of Rs 50,000 crore.

In 2011-12, the total tax-free bonds issued were about Rs 30,000 crore. In the subsequent year, it was estimated at Rs 25,000 crore.

Published on August 12, 2013
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