IRFC bond issue leaves retail investors high and dry
Moneylife Digital Team 19 February 2010

With easy access, large players oversubscribed IRFC’s bond issue within a few hours, leaving small and individual players high and dry

Indian Railway Finance Corp’s (IRFC) first tranche of a 5-year tax-free bond issue carrying an interest rate of 6% has reportedly been fully subscribed within two hours of its announcement. While the issue was easily accessible to larger players, smaller retail investors and brokers could not lay their hands even on a single bond.         
Earlier this month, the Central Board of Direct Taxes (CBDT) permitted IRFC to issue tax-free, non-convertible bonds worth Rs5,000 crore carrying an interest rate in the range of 6.5% to 7.25% per annum, by 31 March 2010. Interest earned from these bonds is exempted from tax under Section 10 of the Income-tax Act, 1961. CBDT said that IRFC would have to issue Railway Bonds at Rs1,000 each for the public or Rs1 lakh each in other cases, including private placements. IRFC was also given a flexibility to peg the coupon rate of 6.5% to 7.25% per annum depending upon the size and tenor of the tranche.

“There is no transparency in these bond issues. Only large players pump in their investors’ money in such bond issues. It is almost like a private placement. The brokerage involved in this issue is only one basis point. The logistics were also formulated in such a way that it discouraged the retail investor. If I have to send the application form and get it signed from my customer it will at least take two hours. So there is no question of him getting a share of the issue,” said an independent financial advisor.

The CBDT has also permitted the National Bank of Agriculture and Rural Development (NABARD) to issue 9.52 million (10-year) zero-coupon Bhavishya Nirman bonds by March-end with a maturity value of Rs20,000 each.

rohit sarawgi
1 decade ago
kindly let me know that these 5 year IRFC Tax Free bonds with an interest rate of 6 % are tradeable in the stock market or not. If yes, pl. provide me more details.
S C Lall
1 decade ago
The news that IRFC tax free bonds have already been subscribed is highly regretful. Retail investors have not been given the opportunity to partake in this issue. I regard this as unethical and highly disgraceful. I have been anxiously waiting for newspaper information about these bonds and kept the money ready - but the news that they have already been oversubscribed without an announcement of issue creates an ill feeling against IRFC.

1 decade ago
This is insane I heard first time of the IRFC bonds(retail investor) and never got a chance to subscribe to it. I never came to know when it was open in the market for subscription and the process for subscribing to it.
GOI you are making rich more richer and poor let be poor.
1 decade ago
In these day's of disintermediatiion (intermediaries are generally being discouraged as a policy) I dont think that is surprising.

All good IPOs, Bond placements are beyond retail investors reach.

I dont think the policy makers really want much retail participation
1 decade ago
IRFC tax free bonds states on the application (soft copy only was available) that they are Private Placement of Secured Tax Free Non Convertible Bonds.
R Balakrishnan
1 decade ago
It is the PSU Banks which put in huge applications for hundreds of crores. It is very attractive for them. Better than lending to corporate sector!
Maybe the government should have a separate issue for banks carrying a lower coupon, one for trusts and other shady institutions at a higher coupon and for retail at a slightly more higher coupon. This way the government can also raise money and also please all.
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