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.