In an attempt to boost finances for the fund starved infrastructure sector, the Central government in a recent move has directed seven Public Sector Undertakings (PSUs) to generate a staggering sum worth Rs. 40,000cr to meet funding shortage in the core sector. In this connection it has asked the companies including the National Highways Authority of India, NTPC, Power Finance Corporation and four others to issue tax-free bonds worth the matching amount during the current fiscal. The Income-Tax Department has already issued a notification and the process of issuance of long term bonds with a tenures of 10, 15 and 20 years will start very shortly, said sources claiming that in a public issue, 40% of bonds will be reserved for retail individual investors (RIIs), such as heads of Hindu Undivided Family and non-resident Indians (NRI) investing up to Rs. 10 lakh.

Investors putting in over Rs. 10 lakh will be categorized as High Net-worth Individuals (HNI). The bonds will carry a coupon rate with the ceiling based on the yields on Government securities (G-sec) and that the issuing company will price the bond by taking an average of the base yield of G-sec for the equivalent maturity reported by the Fixed Income Money Market and Derivative Association of India.

In fact, the ceiling coupon rate for AAA-rated bonds shall be 55 basis points less than the reference gilt yield for retail investors and 80 bps lower for other investor segments. As per current norms, the benchmark 10-year government bond yields 7.72 per cent, while 2025 is yielding 7.78 per cent. The ceiling coupon rate for AA+ bonds shall be 10 basis points above the ceiling rate for AAA-rated companies and in the event of bonds are rated AA or AA (-), the ceiling rate shall be 20 bps above the ceiling rate for AAA-rated companies, they added.