Skip to main content

Investors Sell `Old' Tax-Free Bonds to Put Money in New

By
New issues likely to offer 7.25-7.5%, against 6.85-7.1% yield on old bonds
Many investors are keeping their gunpowder dry these days by selling their taxfree bond units subscribed in 2012-2014. These investors are gearing up for the large taxfree bond issuances from National Highways Authority of India (NHAI) and Indian Railway Finance Corporation (IRFC) totaling around ` . 16,500 crore that are likely to hit the market in mid-December.
These bonds are likely to be offered at higher yields than the existing ones that are traded on the bourses. These investors -both high networth and retail -will use the cash generated from the sale to apply for the forthcoming issues. The new tax-free bonds are likely to offer investors anywhere between 7.25 and 7.5%, while yields on old tax-free bonds are around 6.85-7.1%. The arbitrage will help investors make about 50 basis points.
For example, the 8.3% NHAI bond issued in 2012 and maturing in January 2027, trades at Rs.1,119 in the secondary market,thereby offering a yield of only 6.9%. Investors holding these bonds, can sell them and in turn subscribe to the new issuance of NHAI expected in December with yields in the range of 7.25-7.45%. Similarly the 7.22% REC bonds trade at Rs.1,017, giving investors a yield ` of 6.88%. Many such tax-free bonds issue by NHAI, PFC, REC, HUDCO in the financial years 2012-2014 are now exchanging hands in the secondary markets.
Distributors believe that this action by investors is catching pace now because of the huge issue size from NHAI and RFC. Earlier, tax-free bond issues of NTPC, PFC and REC in his financial year were small and investors could not get heir full share of allotment.Due to huge oversubscription, nvestors got allotment of a mere 15-20% of the amount hey applied for.
“Since NHAI and IRFC are huge issues, the probability of nvestors getting full allotment is high,“ says Vikram Da al, managing director, Synergee Capital. He suggests nvestors sell their old series of bonds, especially those with small issue sizes and apply for he forthcoming issues hrough primary markets, to benefit from the higher yields.Also the large issue sizes would offer higher liquidity in he future.
The Economic Times, New Delhi, 24th Nov. 2015

Comments

Post a Comment

Popular posts from this blog

RBI deputy governor cautions fintech platform lenders on privacy concerns during loan recovery

By
  India's digital lending infrastructure has made the loan sanctioning system online. Yet, loan recovery still needs a “feet on the street” approach, Swaminathan J, deputy governor of the Reserve Bank of India, said at a media event on Tuesday, September 2, according to news agency ANI.According to the ANI report, the deputy governor flagged that fintech operators in the digital lending segment are giving out loans to customers with poor credit profiles and later using aggressive recovery tactics.“While loan sanctioning and disbursement have become increasingly digital, effective collection and recovery still require a 'feet on the street' and empathetic approach. Many fintech platforms operate on a business model that involves extending small-value loans to customers often with poor credit profiles,” Swaminathan J said.   Fintech platforms' business models The central bank deputy governor highlighted that many fintech platforms' business models involve providing sm
Post a Comment
Read more

Credit card spending growth declines on RBI gaze, stress build-up

By
  Credit card spends have further slowed down to 16.6 per cent in the current financial year (FY25), following the Reserve Bank of India’s tightening of unsecured lending norms and rising delinquencies, and increased stress in the portfolio.Typically, during the festival season (September–December), credit card spends peak as several credit card-issuing banks offer discounts and cashbacks on e-commerce and other platforms. This is a reversal of trend in the past three financial years stretching to FY21 due to RBI’s restrictions.In the previous financial year (FY24), credit card spends rose by 27.8 per cent, but were low compared to FY23 which surged by 47.5 per cent. In FY22, the spending increased 54.1 per cent, according to data compiled by Macquarie Research.ICICI Bank recorded 4.4 per cent gross credit losses in its FY24 credit card portfolio as against 3.2 per cent year-on-year. SBI Cards’ credit losses in the segment stood at 7.4 per cent in FY24 and 6.2 per cent in FY23, the rep
Post a Comment
Read more

India can't rely on wealthy to drive growth: Ex-RBI Dy Guv Viral Acharya

By
  India can’t rely on wealthy individuals to drive growth and expect the overall economy to improve, Viral Acharya, former deputy governor of the Reserve Bank of India (RBI) said on Monday.Acharya, who is the C V Starr Professor of Economics in the Department of Finance at New York University’s Stern School of Business (NYU-Stern), said after the Covid-19 pandemic, rural consumption and investments have weakened.We can’t be pumping our growth through the rich and expect that the economy as a whole will do better,” he said while speaking at an event organised by Elara Capital here.f there has to be a trickle-down, it should have actually happened by now,” Acharya said, adding that when the rich keep getting wealthier and wealthier, they have a savings problem.   “The bank account keeps getting bigger, hence they look for financial assets to invest in. India is closed, so our money can't go outside India that easily. So, it has to chase the limited financial assets in the country and
Post a Comment
Read more