IRFC to launch Rs 6,300-cr bond issue, bids open on January 27

MUMBAI: Indian Railways Finance Corporation ( IRFC) will launch its tax-free bond issue, offering up to 8.30% to retail investors and 25 bps lower to institutions, in an attempt to lure retail bids. But the devil is in the detail of the so-called step-down clause — those retail investors who buy in the secondary market will get coupon that’s payable to institutions, depriving them of primary market benefits.

The bonds will be available in tenures of 10 years and 15 years, where with 8.15% on the 10-year bond and 8.30% on the 15-year bond. The institutional investors and high net worth individuals will be paid 7.90% on the 10-year bond and 8.05% on the 15-year bond.

The bonds will come with a step-down clause, according to which only the original allottee, who has subscribed under the retail category will receive the coupon of 8.30%. Once the bond is sold in the secondary market, the coupon gets reduced to 7.90% or 8.05%, as the tenure of the bond may be.

“We are offering a premium on interest to retail investors since we want more retail participation. This will also help stop malpractices in the application process,” a senior official from IRFC said.

Bids for its Rs 3,000-crore issue opens on January 27. The issue will have the green-shoe option to retain up to Rs 6,300 crore. IRFC, unlike other issuers of tax-free bonds this year, National Highway Authority of India and Power Finance Corporation, is aiming to draw in retail investors who did not show enough enthusiasm.