The success of the tax-free bond issue by the National Highways Authority of India (NHAI) has been repeated by Power Finance Corporation (PFC)'s tax-free bond issue of ~4,033 crore, which has been subscribed 2.4 times. The power sector lender received subscriptions worth ~9,791 crore within three days since the opening of the issue.

The qualified institutional investor and high net worth individual (HNI) categories have been over subscribed. However, there is alot of scope to accommodate retail investors.

The government-controlled nonbanking financial company received applications worth ~7,118 crore, against ~2,016 crore reserved for the qualified institutional placement category. The issue was also oversubscribed in the HNI segment and the applications received stood at ~2,397 crore, against ~1,008 crore reserved for the category.

The bonds issued by PFC carry a coupon of 8.3 per cent and 8.4 per cent for maturity periods of 10 and 15 years, respectively. NHAI had offered 8.2 per cent and 8.3 per cent for similar tenures.

However, applications received in the retail segment amounted to ~277 crore, against ~1,008 crore reserved for retail investors. Fifty per cent of the issue is reserved for institutional investors and 25 per cent each for HNIs and retail investors. The bonds are rated 'AAA' by ICRA and Crisil.

The second tranche of PFC's tax free bond issue opened on December 30. The size of the issue is ~1,000 crore, with an option to allot shares worth ~3,033 crore in case of oversubscription, taking the issue size to ~4,033 crore. In the first tranche, the power sector lender raised ~967 crore. The company has been allowed to raise up to ~5,000 crore by the government in 2011-12.

Commenting on the lukewarm response by retail investors, Despite advertising, the awareness among retail investors about the product remains low. We can close the issue after three days by giving a notice a day before….But we may keep the issue open till January 16 to allow more retail investors to subscribe. Tax-free bonds are those in which the interest income from the instruments is not taxed. Infrastructure related firms are able to garner much-needed capital for on-lending and project execution through such issues.