EPFO to offload IIFCL bonds, net 21-crore capital gains
EPFO’s bond sale comes at a time when IIFCL itself intends to raise Rs 1,200 crore in tax-free debt instruments with an expected coupon rate of 8.5%.
By Vikas Dhoot, ET Bureau |
NEW DELHI: The Employees’ Provident Fund Organisation (EPFO) has set out to sell 950 crore of India Infrastructure Finance Company (IIFCL) bonds, thus emptying its vault of the lenders’ securities. At the current market rate of Rs 102.2 per debenture, the sale would translate into capital gains of Rs 21 crore for the EPFO. Additionally, reinvestment will earn nearly 1.7% more than the 6.85% interest these bonds would pay over the rest of their tenure.
“We have told our fund managers to offload all our IIFCL bond holdings as a onetime sale,” said Samirendra Chatterjee, EPFO’s top official. “This will boost our income by around Rs 100 crore.”
The sale is a marked departure from its moribund investment policies under which it is prohibited to trade in debt instruments in the secondary market. Once EPFO purchases a security, it is required to simply hold on to them till maturity with no option to exit . EPFO’s bond sale comes at a time when IIFCL itself intends to raise Rs 1,200 crore in tax-free debt instruments with an expected coupon rate of 8.5%. The infrastructure financier plans to raise this money in three tranches from January to March 2011.
EPFO had bought IIFCL’s tax-free bonds from the primary market in January 2009. Fully guaranteed by the central government , the 5-year bonds offered 6.85% interest when comparative yields on government securities were at 6%. Since EPFO’s entire income is tax-free , the tax sops on the bonds don’t matter to the Rs 3,20,000-crore entity. But for other investors, the bonds offer a pre-tax return of 9.05%, making them pretty attractive in the secondary market.
With state development loans and public sector bonds offering around 8.50%, the EPFO had approached the government for permission to sell its IIFCL bonds at a premium and reinvest the money for better yields.
“We have told our fund managers to offload all our IIFCL bond holdings as a onetime sale,” said Samirendra Chatterjee, EPFO’s top official. “This will boost our income by around Rs 100 crore.”
The sale is a marked departure from its moribund investment policies under which it is prohibited to trade in debt instruments in the secondary market. Once EPFO purchases a security, it is required to simply hold on to them till maturity with no option to exit . EPFO’s bond sale comes at a time when IIFCL itself intends to raise Rs 1,200 crore in tax-free debt instruments with an expected coupon rate of 8.5%. The infrastructure financier plans to raise this money in three tranches from January to March 2011.
EPFO had bought IIFCL’s tax-free bonds from the primary market in January 2009. Fully guaranteed by the central government , the 5-year bonds offered 6.85% interest when comparative yields on government securities were at 6%. Since EPFO’s entire income is tax-free , the tax sops on the bonds don’t matter to the Rs 3,20,000-crore entity. But for other investors, the bonds offer a pre-tax return of 9.05%, making them pretty attractive in the secondary market.
With state development loans and public sector bonds offering around 8.50%, the EPFO had approached the government for permission to sell its IIFCL bonds at a premium and reinvest the money for better yields.
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