The issue size of the tax-free bond with a face value of Rs. 1000 each is Rs. 1500 crore with a green shoe option to raise a maximum of Rs. 8660 crores in the FY 2014. The Finance Ministry has earlier allowed the company to raise Rs. 10,000 crore via issue of tax-free bonds. And the company had already raised approximately Rs 1,340 crore via private placement.
The funds mopped up through the issue of tax-free bonds will be deployed for financing the purchase of rolling stock that will be provided to the Ministry of Railways on lease.
Should you invest in IRFC tax-free bond?
Tax-free bonds are fixed income financial instruments that provide return on an annual basis which is usually linked to the long-term interest rate on G-securities. Government-owned institutions and companies come up with issue of tax-free bonds. So, the chances of default on principal and interest payment are very low.
Tax-free bonds are attractive investment options for investors as the interest earned on these bonds are tax free. This means that you do not have to add your interest income from these bonds to your total income to compute tax liability.
To retail investors, the company is offering a coupon rate of 8.48% and 8.65% for 10 and 15 year bonds respectively. The return on these tax-free bonds is lower by about 0.3% in comparison to coupon rate offering of HUDCO of 8.76%, 8.83% and 9.01% for bonds with maturity term of 10, 15 and 20 years respectively.
For institutional investors, the coupon rates for 10-year and 15-year bonds is 8.23% and 8.40% respectively.
The IRFC tax-free bond issue has been rated CRISIL AAA/Stable, [ICRA] AAA and CARE AAA by CRISIL, ICRA and CARE respectively which affirms highest degree of safety of the instrument with respect to timely servicing of financial obligations and lowest credit risk.