IREDA bond issue subscribed three times on day one

MUMBAI: The Rs 1,716-crore tax-free bond issue of Indian Renewable Energy Development Agency (IREDA) was subscribed nearly three times on the first day as investors, uncertain about the equity market outlook, flocked to the safer debt instrument.

The retail portion was subscribed 1.84 times, while the HNI portion received bids for 2.04 times the part set aside for them. Since the bonds of IREDA are AA+ rated, a notch lower than AAA rating, they offer 10 basis points higher rate than an AAA-rated issue.

IREDA will pay 7.53% for 10 years, 7.74% for 15 years and 7.68% for 20 years. Non-retail investors will get returns 25 basis points lower than the retail investors. The coupon rate was the highest among all tax-free bond issues in this financial year ending March 31, 2016.

IREDA is the sixth tax-free bond issue so far this fiscal. Since banks’ fixed deposits offer 6.75-7.5% interest pre-tax, rich investors find the coupons from tax-free bonds very attractive. As interest rates head lower, there is a chance of earning capital appreciation in these bonds.

Wealth managers recommend these issues as they do not have a put or call option and, hence, there is no reinvestment risk. “Investors rushed to invest as the rates on offer were lucrative. Despite the rating being AA+, investors did not differentiate as it is a PSU. The additional 10 basis points interest led to higher attention from smart investors,” says Ajay Manglunia of Edelweiss Securities.