According to reports, India allowed 13 state companies to raise as much as Rs.48, 000 crore ($7.9 billion) selling tax- free bonds this financial year, helping generate funds for infrastructure such as roads, ports and power plants.
The government will also allow sovereign wealth funds to invest in such debt for the first time, according to a ministry of finance circular obtained by Bloomberg News on Monday.
Under the plan, India Infrastructure Finance Co. Ltd and Indian Railway Finance Corp. Ltd can sell as much as Rs.10,000 crore of debt each while Housing & Urban Development Corp., Rural Electrification Corp., Power Finance Corp. and National Highways Authority of India can sell as much as Rs.5,000 crore each.
Prime Minister Manmohan Singh’s government is selling tax- exempt bonds to help fund his plan to double spending on public work projects to $1 trillion by 2017. Presenting the union budget for 2013-14 in the lower house of parliament on 28 February, finance minister P. Chidambaram had said Rs.50,000 crore of tax-free bonds would be allocated to some institutions strictly on the basis of need and capacity next financial year.
Surabhi Sharma, the under secretary to the government who signed the ministry of finance circular, didn’t answer three phone calls to her office on Monday. Rekha Shukla, a spokeswoman for the Central Board of Direct Taxes, couldn’t immediately comment.
“Because these bonds will be issued by government- supported institutions, they’ll be considered as good as sovereign bonds and sovereign wealth funds may find them an attractive proposition,” said R.V. Verma, the managing director of National Housing Bank, which itself has been allowed to sell as much as Rs.3,000 crore of tax-exempt notes this year. Overseas sovereign wealth funds and investors are looking for such opportunities because the investment climate globally remains weak.
Other companies mentioned in the circular include NTPC Ltd, which can sell as much as Rs.1750 crore of the securities, and Indian Renewable Energy Development Agency Ltd and NHPC Ltd, which are permitted to raise as much as Rs.1,000 crore each.
Ennore Port Ltd and Airports Authority of India can issue up to Rs.500 crore each of tax-free notes, and Cochin Shipyard Ltd can offer as much as Rs.250 crore.
The tax-free notes must be in maturities of 10-, 15-, and 20-years and pricing will be linked to government securities reported by the Fixed Income Money Market and Derivative Association of India, according to the circular.
The ministry has also mandated companies raise at least 70% of the aggregate amount allocated by public offerings, of which about 40% must be sold to individual investors, according to the document.