IIFCL Announces Tranche 2 Of Tax Free Bonds

After four major companies - PFC, IRFC, REC and HUDCO - have tapped the markets to raise funds by issuing Tax free bonds, it is now time for India Infrastructure Finance Company (IIFCL) to do the same for raising upto Rs 200 crore with an option to retain the residual shelf limit of approximately Rs 6331 crore by this fiscal. One should note that the company is coming out with its second Tranche, after it had tapped the market earlier in December 2012 with its Tranche 1 issue.

The minimum application for the issue is Rs 5000 (i.e. 5 bonds worth a Face Value of Rs 1000 each), thereafter the application can be made in the multiples of Rs 1000 i.e. one bond. Further, the bonds of IIFCL would only be listed on the Bombay Stock Exchange (BSE). The issue has already opened on February 25, 2013 and will close on March 15, 2013. The interest on these bonds would be paid annually.

The interest rate offered by the company is lower by more than 30 basis points across various options when compared to its previous issue which had come at the end of December 2012. This is majorly on account of the softening interest rate. For reference, the Reserve Bank of India (RBI) slashed the key repo rate by 25 basis points in its January 2013 monetary meet.

Investors falling under the highest tax bracket would get the maximum benefit of this, as the effective yield for them is above 10%. Overall, we believe that the company is offering the least coupon rate when compared to other similar issues of REC, PFC, IRFC, and HUDCO which are currently going on.

The only different thing which investors can get from this issue is a longer horizon of 20 years. Otherwise, one may opt for HUDCO's Tax free bonds as it is offering a much higher coupon rate. We continue to retain our stance for subscribing HUDCO tax free bonds and hence investors could ignore this issue of IIFCL.