IIFCL to issue tax-free infra bonds in Dec to raise Rs 1,000 crore

India Infrastructure Finance Company (IIFCL) on Tuesday said it will issue tax-free infrastructure bonds having an interest rate of 7.5-8 per cent

India Infrastructure Finance Company (IIFCL) on Tuesday said it will issue tax-free infrastructure bonds having an interest rate of 7.5-8 per cent in December for raising around Rs 1,000 crore.

The bonds will be of two categories one with a 10-year tenure and the other with a 15-year tenure and be redeemable after five years,IIFCL chairman and managing director S K Goel told reporters here adding that the proceeds of the bond issue would be utilised to finance the infrastructure projects.

We have been given permission to raise funds through tax free bonds. We expect to raise Rs 1,000 crore from this bonds this fiscal. Around December bonds will come in the market, Goel said.

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After IDFC,IIFCL would be the second infrastructure finance company to float the tax-free bonds. In Budget 2010-11,Finance minister Pranab Mukherjee had announced that few selected financial institutions would be able to issue infrastructure bonds which would be tax-free under Section 80CCF of the Income Tax Act.

IDFC was the first such institution to mop up Rs 3,400 crore from the market by issuing the bonds,the issue of which is scheduled to close on October 22. The tax deduction would be over and above the Rs one lakh limit provided under Section 80CC of the I-T Act. Currently,only four companies IDFC,IFCI,Power Finance Corporation and L&T Infrastructure have been allowed by the RBI to issue such bonds.

Meanwhile,the infrastructure company also entered into a takeout financing agreement with a clutch of banks including Union Bank of India,Punjab National Bank,Indian Bank,Allahabad Bank,for financing different projects. IIFCL also issued the sanction letters for the first takeout finance transaction to UBI involving taking out of over Rs 1,500 crore in seven different projects from the power and road sector.

Takeout financing is a method in which banks’ loans to infrastructure firms is sold to other institution,so that banks get much-needed funds. This is done to address asset-liability mismatch,because lending to infrastructure is long-term,while deposits of banks are generally of short or medium tenure.

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During the current fiscal,IIFCL would do takeout financing of around Rs 3,000 crore and Rs 25,000 crore over a period of three years. Out of Rs 25000 crore takeout financing,we can expect Rs 100 crore of profit, Goel said. During the occasion,the finance minister said during the twelfth Plan period,infrastructure investment of $1 trillion dollar has been envisaged.

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