Building on infrastructure growth
1/13/2012 12:13 PM Friday
Long term infrastructure bonds fall under Section 80 CCF of the Income Tax Act, 1961. Investments in such bonds entitle an investor to a deduction of up to Rs 20000 from the gross total income over and above the limit of Rs 1 lakh available under Section 80C. The bonds will be available for a minimum tenure of 10 years, and will have a lock-in period of five years. Only Resident Individuals (Major) and HUFs can invest in these bonds. However, one should note that the interest earned on these bonds is taxable.
Companies like L&T Infrastructure Finance and SREI Infrastructure Finance have tapped the market to raise funds through the long term infrastructure bond route earlier too. Now, L&T is tapping this route for the second time in this financial year, while SREI is raising money for the first time in FY12.
L&T Infra has plans of mobilising Rs 1100 crore in FY12 by issuing infra bonds. In the first tranche, L&T had mobilised approximately Rs 530 crore. Of this, approximately 71 per cent of the subscription was for the second option, i.e. cumulative interest payment. This tells us that investors are confident about the company’s fundamentals and will take up the entire amount (Principal + Interest) at the time of maturity or at the time of a buyback.
With interest rates softening, the company is offering a coupon rate of 8.70 per cent this time, which is lower by 30 basis points with respect to the earlier issue. The other aspects of the bond are similar to the tranche 1 issue. It has two options, one with interest paid annually, while the other offers cumulative interest payment. Both options have a tenure of 10 years. The bond has a buyback option at the end of the fifth and seventh years. The minimum application amount is Rs 5000 (i.e. five bonds of Rs 1000 each), beyond which investors can apply in multiples of one bond (Rs 1000). The issue opened on 10th January, 2012, and will close on 11th February, 2012.
SREI Infrastructure Finance is also tapping the market through long term infrastructure bonds to raise funds up to Rs 300 crore. The minimum application amount is Rs 1000 (i.e. one bond of Rs 1000), and investors can apply in multiples of one bond thereafter. The issue opened on 31st December, 2011, and will close on 31st January, 2012.
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