Tax-free bonds meet tepid response from investors this year

State-run companies issuing back-to-back tax free bonds have been worried about the sluggish demand for their offers among high networth investors (HNIs) or companies these days.

Most of the issues, despite being tax free, have failed to meet the desired response from investors as larger players didn't even participate in those offers for poor yield generated this year compared to previous year.

Power Finance Corp's Rs 5,600 crore bond issue, including the green-shoe units, has been extended for some days as the offering received just 60 per cent bids until the weekend.

In the similar fashion, Rural Electrification Corp's (REC) bond issue raised about Rs 3,000 crore against the target of Rs 5,500 crore, including the green-shoe option.

Experts said that HNIs have dumped these offers as they didn't find the yields of around 7.2 per cent on the tax-free bonds attractive enough like last year when it were 8.1-8.3 per cent.

Last year, the HNI category for these tax-free bonds was fully subscribed on the very first day, with retail investors bidding over the next few days, helping the firms to raise as much as RS 30,000 crore in 2011-12.

Experts also said that brokers have not pushed the sale of these offers due to lower commissions of around 0.1 per cent.