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IRFC offers up to 8.30% to retail investors and 25 bps lower to institutions in tax-free issue
Indian Railways Finance Corporation (IRFC) will launch its tax-free bond issue, offering up to 8.30% to retail investors and 25 basis points lower to institutional investors, in an attempt to lure retail bids. But the devil is in the detail of the so-called stepdown clause — those retail investor who buy in the secondary market will get coupon that's payable to institutions, depriving them of primary market benefits.
The bonds will be available in tenures of 10 years and 15 years, where with 8.15% on the 10-year bond and 8.30% on the fifteen-year bond. The institutional investors and high net worth individuals will be paid 7.90% on the 10-year bond and 8.05% on the 15-year bond.
The bonds will come with a step-down clause, according to which only the original allottee, who has subscribed under the retail category will receive the coupon of 8.30%. Once the bond is sold in the secondary markets, the coupon gets reduced to 7.90% or 8.05%, as the tenure of the bond may be.
"We are offering a premium on interest to retail investors since we want more retail participation. This will also help stop malpractices in the application process," a senior official from IRFC said.
Bids for its . 3,000-crore issue opens on January 27. The issue will have the green-shoe option to retain up to . 6,300 crore. IRFC, unlike other issuers of tax-free bonds this year, National highway Authority of India and Power Finance Corporation, are aiming to draw in retail investors who did not show enough enthusiasm. IRFC would use the funds raised for financing primarily rolling stocks for the railways, electrification projects and rail doubling.
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