About five companies are planning to raise Rs 2,720 crore this week through Exchange-Traded Fund (ETF) bonds on a private placement basis, merchant bankers said.
These ETF bonds are similar to normal corporate bonds but the subscription of their greenshoe option, or retained oversubscription, is exclusively reserved for the Bharat Bond ETF, as per issuer manuals of these bonds.
Companies which are planning to raise funds are Hindustan Petroleum Corp (HPCL), NTPC, REC, Indian Railway Finance Corporation (IRFC), and Housing and Urban Development Corporation Ltd (Hudco).
State-owned companies are raising funds through ETF bonds to get investment from the latest tranche of Bharat Bond ETF maturing in April 2033. The funds raised through the Bharat Bond tranche will be invested in 'AAA-rated' bonds of public sector undertaking entities.
"These bonds are meant specifically for Bharat Bond's latest 2033 maturity ETF. Based on the amount raised in the ETF, state-owned companies will be raising bonds to be assigned to the ETF as a larger part is reserved for Bharat Bond ETF 2033," said Ajay Manglunia, managing director and head of investment group at JM Financial.
Will this help investors?
The issuances lined up by a few state-owned companies will help retail investors of Bharat Bond ETF as they will get exposure to these bonds, money market dealers said.
It will also help retail investors because the coupon set on the base issue of these bonds would be the pricing for the greenshoe option as well.
It is difficult for retail investors to invest in bonds as the minimum capital required is high, and also to exit before maturity due to a lack of liquidity in the secondary markets. Bond ETFs make it easy for retail investors by reducing the minimum capital required to invest and providing liquidity via market makers.
Bond ETFs provide easy access to a diversified bond portfolio in a transparent way. Being an ETF, its holdings are disclosed daily, unlike the bond mutual funds where the portfolio is disclosed only once a month.
Also read: Bharat Bond ETF over-subscribed; garners Rs 2,800 crore
The issues
NTPC, REC, and IRFC are planning to raise Rs 500 crore each, which includes Rs 350 crore in greenshoe, merchant bankers close to the development said.
The maturity of the NTPC and IRFC bonds is 10-year-4-month while REC bonds will mature in 10-year and 3.5-month.
Hudco and HPCL will raise Rs 470 crore and Rs 750 crore, respectively. Both bonds have a retain oversubscription option of Rs 350 crore each and will mature in 10-year-4-month.
All bonds that will be issued this week have a maturity close to the Bharat Bond ETF fourth tranche, which will mature in April 2033.
"So clearly, we expect coupon set on these bonds will be better than other issuances," a dealer with a brokerage firm said.
On December 13, Power Finance Corp raised Rs 470 crore through 10-year-4-month ETF bonds at a coupon rate of 7.58 percent
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
