Infrastructure bonds: Choices in store

Suresh Krishnamurthy

AFTER a long period of time, investors seeking tax rebate under Section 88 can look forward to more than a few investment choices.

The applications of several infrastructure companies seeking the tax rebate status are now with the Government. Investors faced with the prospect of investing in the offers of financial institutions year after year can, perhaps, breathe a sigh of relief. However, those who have already made their investments in ICICI's Safety Bonds have reason to feel deprived.

Things are still unclear for investors and it may take a while **for the infrastructure companies to come out with their offers. For now, investors, especially those who have invested in the bonds of financial institutions (FIs) in the last few years, can stay away from the Flexibonds and Safety Bonds offer till end-January. However, if infrastructure companies still stay away from the market, investors would have no choice but to invest in the offers of financial institutions which are most likely to hit the market either in February or March as has been trend in the last few years.

investor interest could further be dampened if the yield offered by infrastructure companies is lower than that offered by financial institutions. In that case, those investing for the first time can invest in the bonds offer of financial institutions. Others can, however, seriously consider the offers from infrastructure companies for the sake of portfolio diversification.

Once again, it has to be borne in mind that the risks of investing in some of the infrastructure companies are likely to be higher than investing in FIs since they are most likely to be greenfield projects with high gestation. In this context, if the term-to-maturity is more than five years, the attractiveness of these bonds can get dampened since the bonds offered by FIs have a term-to-maturity of only three years. In fact, this is a serious question that needs to be addressed by infrastructure companies. Also, they need support from banks and FIs in the form of requisite financing. A bond with a long maturity period is unlikely to wean away the investor from his staple diet of three-year bonds offered by FIs, howsoever stark the need for portfolio diversification may be.