L&T Infra CEO Suneet Maheshwari in Calcutta on Thursday. A Telegraph picture

Calcutta, Oct. 21: L&T Infrastructure Finance Company expects to bring down its average cost of borrowing by 1.25 to 1.50 percentage points, following its issue of tax-saving infrastructure bonds.

The step-down subsidiary of Larsen & Toubro has hit the market with infrastructure bonds on October 15 to mobilise Rs 200 crore with an option of retaining oversubscription up to Rs 500 crore.

“At present, our weighted average cost of borrowing is 8.64 per cent,” CEO Suneet K. Maheshwari said. “Our average cost of borrowing from the bond issue, including the issue expenses, will be around 8.1 per cent. Given the cost of alternative sources for raising money for 10 years, we expect to bring down our borrowing cost by 125-150 basis points.”

The lower borrowing cost is expected to increase the company’s profitability. Maheswari, however, said the firm would rather use this benefit to lure highly rated companies with lower lending rates. “These companies are now going to banks that are giving them a lower rate,” he said.

L&T Infra is the third company to float tax-saving bonds. Earlier, IFCI mopped up Rs 50 crore and Infrastructure Development Finance Company (IDFC) raised Rs 3,400 crore by issuing this instrument.

However, L&T Infra bonds offer a lower interest rate between 7.50 per cent and 7.75 per cent compared with 8 per cent offered by IDFC and 7.95 per cent by IFCI.

Companies such as Rural Electrification Corporation, Power Finance Corporation and the LIC are also expected to issue infrastructure bonds soon.

Budget 2010-11 enables investors to claim a deduction of up to Rs 20,000 from taxable income under a new section (80CCF) of the income tax act by investing in infrastructure bonds of specified companies notified by the Reserve Bank of India.