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THE premium listing that the National Highway Authority of India (NHAI) bonds got in the markets last week has stepped up the expectations and set the benchmark for the bonds of Power Finance Corporation (PFC) that will list in a day or two. Like the NHAI bond, which listed at a 3 per cent premium on its debut last Wednesday, expectations are riding high for the other tax-free bonds that raised funds recently, including PFC, IRFC (Indian Railway Finance Corporation) and Hudco (Housing and Urban Development Corporation) to have a premium listing.

We expect most of the recent bond issues to list at a premium, since the pricing at the time of issue was also at a similar level. There may be a 5-7 basis point high or low, that too based on the frequency of these companies coming to the market. For instance, NHAI has not been coming to the market quite often, whereas, PFC has been around more frequently to raise funds.

NHAI raised Rs 10,000 crore through a tax-free bond issue, while PFC raised over Rs 4,000 crore.

Both issues promised annual tax-free returns of 8.2 per cent for the ten-year bonds and 8.3 per cent for the 15-year bonds. The 10 year bond of NHAI, the N1 series, closed at Rs 1,032 in the NSE on Monday, while 15-year bond, the N2 series, closed at Rs 1,038.

Bonds of IRFC, Hudco will take some more time to list, and the premium will depend on the interest rate scenario then, Manglunia says.

However, Rural Electrification Corporation (REC), whose Rs 4,000 crore tax-free bond issue is expected to open next month, may not meet with a fervent response.

REC's issue will come at a time when there would be expectations of another CRR (cash reserve ratio) cut and interest rates will be expected to soften. We

expect the REC issue to have a reduced coupon rate and also may not get this kind of a listing.

Bond markets perform conversely to the interest rate movement. Since the interest rates peaked in the recent times, the bond issues also received excellent response from the corporate investors and high-networth individuals (HNI).

Also, we do not get to see such tax-free bonds by public-sector companies every year, which make them much more attractive, experts say.

In most of the issues, the institutional investment and the HNI portion were  oversubscribed, while the retail portion was barely subscribed. For instance, NHAI's bond issue was a Rs 10,000 crore issue, but the retail portion of the bond was only Rs 600-700 crore, and even that was not adequately subscribed despite a good overall subscription because of lack of awareness among the public, experts point out.

Unlike equity markets, prices in the bond markets are more or less stable. It changes with a change in the interest rates or credit quality. The prices are stable and investors are comfortable holding on to their investments.

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7. SBI Magnum Tax Gain Scheme 1993
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