Tax Free Bonds for Individuals Investors and Institutional Buyers

NOTIFICATION NO. 61/2013, DATED 8-8-2013

S.O. 2424(E) In exercise of the powers .conferred by item (h) of sub-clause (iv) of clause (15) of section 10 of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby authorises the entities mentioned in column (2) of the following Table, to issue, during the financial year 2013-14, tax-free, secured, redeemable, non-convertible bonds, aggregating to amounts mentioned in column (3) of the said table, subject to the conditions, namely; -

Eligibility.

1. The following shall be eligible to subscribe to the bonds:

(a) Retail Individual Investors (RIIs);

(b) Qualified Institutional Buyers (QIBs);

(c) Corporates.- (including statutory corporations), trusts, partnership firms, limited liability partnerships, Co-operative banks, regional rural banks and other legal entities, subject to compliance with their respective applicable legislations; and

(d) High Networth Individuals (HNIs).

Tenure of bonds.

2. The tenure of the bonds shall be ten, fifteen or twenty years.

Permanent Account Number.

3. It shall be mandatory for the subscribers to furnish their Permanent Account Number to the issuer.

Rate of interest.

4. (1) There shall be a ceiling on the coupon rates based on the reference Government security (G-sec) rate.

(2) The reference G-sec rate shall be the average of the base yield of G-sec for equivalent maturity reported by Fixed Income Money Market and Derivative Association of India (FIMMDA) on a daily basis (working day) prevailing for two weeks ending on Friday immediately preceding the filing of the final prospectus with the Exchange or Registrar of Companies (ROC) in case of public issue and the issue opening date in case of private placement.

(3) The ceiling coupon rate for AAA rated issuers shall be the reference G-sec rate less 55 basis points in case of RIIs and reference G-sec rate less 80 basis points in case of other investor segments referred to at (b), (c) and (d) of paragraph 1 above.

(4) In case the rating of the issuer entity is AA+, the ceiling rate shall be 10 basis points above the ceiling rate for AAA rated entities as given in clause (3).

(5) In case the rating of the issuer entity is AA or AA-, the ceiling rate shall be 20 basis points above the ceiling rate for AAA rated entities as given in clause(3).

(6) These ceiling rates shall apply for annual payment of interest and in case the schedule of interest payment is altered to semi-annual, the interest rates shall be reduced by 15 basis points.

(7) The higher rate of interest, applicable to RIIs, shall not be available in case the bonds are transferred by RIIs to non retail investors.

Issue expense and brokerage.

5. (1) In the case of private placement, the total issue expense shall not exceed 0.25 per cent of the issue size and in case of public issue it shall not exceed 0.65 per cent of the issue size.

(2) The issue expense would include all expenses relating to the issue like brokerage, advertisement, printing, registration etc.

Public issue.

6. (1) At least 70 per cent of the aggregate amount of bonds issued by each entity shall be raised through public issue and the same shall not be applicable in case of entities where the aggregate amount of bonds as per column (3) of the table is less than rupees five hundred crore.

(2) 40 per cent of such public issue shall be earmarked for RIIs.

Private placement.

7. (1) While adopting the private placement route to issue the bonds, each entity shall adopt the book building approach except for those mentioned in sub-paragraph (2) except as per regulation II of the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations 2008, wherein bids shall be sought on the coupon rate subject to a ceiling specified by the entity and the allotment shall be made at the price bid.

(2) The issuers shall earmark suitable amounts within their private placement allocation for placing with Sovereign Wealth Funds, Pension and Gratuity Funds without the requirement of book building procedure: Provided that in the event of any non-response, the issuers shall be free to offer the un-subscribed amount through book building route under private placement in domestic market.

(3) The bonds shall be paid for and issued at a premium but with a fixed coupon so that the instrument can be traded under a single International Securities Identification Number (ISIN) and the yield shall be worked out based on the price quoted and then allotment shall be done for the best price (lowest yield).

(4) The ceiling rate of the interest shall either be equal to or lower than the rate mentioned in paragraph 4 above.

(5) While calling for bids, there shall be no limit on the number of arrangers who can bid for the issue.

Repayment of bonds.

8. (1) The issuer entity shall submit a financing plan to the Ministry of Finance to demonstrate its ability to repay the borrowed funds once the repayment becomes due.

(2) The financing plan referred in sub-paragraph (1) shall be submitted to the Infra-Finance Section, Infrastructure Division, Department of Economic Affairs, Ministry of Finance, within three months of closure of the issue, duly supported by a resolution of the respective entitys Board of Directors.

Selection of merchant bankers.

9. (1) The merchant bankers shall be selected through competitive bidding process with transparent pre-qualification criteria and the final selection shall be based on evaluation of financial bids.

(2) The benefit under section 10 of the Income-tax Act, 1961 (43 of 1961) shall be admissible only if the holder of such bonds register his name and the holding with the entity.

(3) The issue shall be made in compliance with the public issue requirements specified in the Companies Act, 1956 (1 of 1956) and Securities and Exchange Board of India (Issue and Listing ofDebt Securities) Regulations, 2008 including inter alia, the filing of a prospectus with the Registrar of Companies, as applicable.