Issuers are not sure whether there would be sufficient participation from retail investors for their tax-free infrastructure bond issues in order to meet the regulatory requirement.
According to government norms, issuers must raise at least 40 percent of the capital mopped up through public bond issue from retail investors.
Market makers too are skeptical of the move of earmarking 40 percent for retail investors. Investment appetite for infrastructure bonds is not seen good. The reward on tax benefit may not be seen adequate to cover higher credit risk. The macroeconomic dynamics are also weak with less optimism from lack of political consensus on reforms, said Moses Harding, head asset liability committee and global markets, IndusInd Bank.
It is learnt that around Rs 16,000 crore out of Rs 53,500-crore worth bonds on offer is expected to be made available to retail investors over the next four months.
According to a finance ministry notification, companies must raise at least 75 percent of the amount of bonds issued through public issue, out of which 40 percent would be earmarked for retail investors. The rest can be through private placement.
Moreover, the brokerage or commission given to brokers has been brought down. Rural Electrification Corporation (REC), that gave a commission of 1.2 percent to the brokers last year slashed the brokerage to 75 bps this time.
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