Get ready for a slew of tax-saving bonds from both public sector undertakings and

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infrastructure finance companies. Power Finance Corporation (PFC) is laun­ching Rs 6,900 crore of tax-saving bonds while IDFC plans to launch Rs 5,000 crore tax-saving bonds for retail investors. The other tax-saving bonds include that of Power Trading Corporation (PTC) and India Infrastructure Finance (IIFCL).

In tax-saving bonds, the investment is reduced from total taxable income while in tax-free bonds, the income earned by investing into bonds is not taxed.

The first to hit the market is PFC with a bond issue of Rs 200 crore with a large green shoe option, to retain up to Rs 6,900 crore with a 10-year and 15-year option. R Nagarajan, director finance of PFC, told Financial Chronicle that the bonds would carry interest rates of 8.50 per cent and 8.75 per cent, respectively. The bond issue, which is open for investors from September 29, may run into more than one tranches depending on the demand.

Infrastructure lending company IDFC has already filed with Securities and Exchange Board of India (Sebi) to launch the tax-free bonds also of a similar quantum of Rs 5,000 crore in three tranches. And the interest rate would be around 8 per cent with tenure of 5 to 10 years.

PFC is also in market with a tax-free bond for institutional investors to raise Rs 150 crore and a green shoe option to retain up to Rs 5,000 crore. The issue opens on September 29 and closes on October 7. “The rates offered under the issue are 7.51 per cent for the 10 year bond and 7.75 for the 15 year bonds,” Nagarajan, director-finance of PFC, said.

Infrastructure finance companies can raise tax saving bonds would be 25 per cent of the incremental infrastructure lending. The pricing of the bond issuance has to be the rate on the 10-year government security bond. The incremental disbursement from IDFC over the last year is Rs 10,000 crore. The total book of the institution is about Rs 50,000 crore.

PTC, a major lender to the power sector, plans to raise a maximum of Rs 150 crore through tax-saving bonds most likely to hit the market in October 2011. A person close to the development said that the coupon rates for the 10 year and 15 year bonds would be based previous month 10-year government benchmark bond. "The funds would be used fulfil Rs 5,000 crore commitment for power sector lending,” he said.

“We are awaiting a final nod from Sebi after which the bond issuance will be finalised. We would be raising Rs 5,000 crore but the structure is yet to be finalised. It could also be structured as 150 crore bond issue with green shoe option of Rs 5,000 crore or we may launch the bond for the entire Rs 5,000 crore,” the official added.

IIFCL got government permission to launch tax saving infrastructure bonds of Rs 1,000 crore. “We are still working out the modalities but will hit the market soon. Tenure of the issuance will be for 10 and 15 years and interest would be the 20 bps below the 10 year government benchmark bond of the previous month,” said a senior IIFCL official.

Last year also, IDFC, IIFCL and L&T had launched bond tax-saving infrastructure bonds together raising about Rs 4,000 crore. IDFC raised about Rs 1,451 crore through its infrastructure bond issuance.

“With domestic interest rates at over 10 per cent it becomes very expensive for infrastructure finance from banks at 11 per cent. We have to tap the retail and institutional bond market to keep the borrowing costs lower,” said a senior IDFC official.

Besides tax-saving bond issues, the companies are also being allowed to launch tax-free bond issues. “Power and infrastructure companies will come up with a tax-free bond after the finance ministry agreed to allow these instruments so that financing for infrastructure does not get choked and to encourage loans to originate from infra finance companies rather than the banks,” said a senior IIFCL official.