NHAI tax-free bond issue subscribed two times

The public issue of tax-free bonds by the National highways Authority of India (NHAI) has been subscribed by almost two times on the first day, according to merchant bankers.

The subscription for ~10,000 crore of tax-free bonds, which opened today, may close by Friday, instead of the scheduled closure on January 11. SBI Capital Markets, A KCapital, Kotak Mahindra Bank, and ICICI Securities are the lead managers for the issue. The bonds have been rated 'AAA' by Crisil, CARE and Fitch.

NHAI had the option of either closing the issue after a minimum of three days, or extend it by 30 days.

NHAI received ~12,000 crore against ~4,000 crore reserved for qualified institutional investors, ~6,000 crore against ~3,000 crore reserved for high net worth individuals and ~1,000 crore against ~3,000 crore reserved for the retail segment.

JN Singh, member (finance), NHAI, said the response for the issue was overwhelming. "The issue may be closed before schedule, if it is oversubscribed," he said. He, however, did not confirm the figures. NHAI had received the ministry's approval to raise up to ~10,000 crore through the sale of tax-free bonds in the current financial year.

The bonds carry a coupon rate of 8.2 per cent on 10-year maturities and 8.3 per cent on 15-year maturities. The coupon rate on these bonds is not taxable, and should not be less than 50 basis points lower than the yield on government securities of the same residual maturity, as reported by the Fixed Income Money Market and Derivatives Association on the last working day of the month preceding the month of the issue.

In case the companies choose to place the bonds privately, the coupon rate on the bonds would not be less than 100 basis points lower than the yield on government securities of the equivalent residual maturity.

In the 2011-12 Union Budget, approvals were given to NHAI, Housing Urban Development Corporation (Hudco), Indian Railway Finance Corporation (IRFC) and Power Finance Corporation (PFC) to raise ~30,000 crore through tax-free bonds. While Hudco and PFC have already issued these bonds, IRFC is yet to tap the debt market with these instruments.

Good response may allow the authority to close the issue this week

The bonds carrya coupon rate of8.2 per centon 10-year maturities and 8.3 per centon 15-year maturities

 

 

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National Highways Authority Tax Free Infra Bonds

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UNFAZED by uncertainty in the capital markets, the National Highways Authority of India (NHAI) will launch its first ever tax-free bonds issue of Rs 10,000 crore on December 28.

The issue will close on December 30, a senior road transport ministry official said.

The official further said the interest (coupon) rate of the bonds issue will be between 8 and 8.5 per cent, while refusing to disclose the exact number.

"A formal announcement will be made by road transport minister CP Joshi and you should wait for that," the official said, adding that the money raised from it will be used to partly finance various national highways projects under different government schemes.

"Some money will also be used for viability gap funding for BOT (build-operate transfer) road contracts," the official added.

As per the prospectus filed by NHAI with the market regulator, the Securities and Exchange Board of India (Sebi), the bonds will have two maturity periods of 10 and 15 years, and would get listed on the BSE and the National Stock Exchange.

In this year's budget, the government had allowed NHAI to raise Rs 10,000 crore from the tax-free bonds, an instrument never used by it earlier. Till now, it used to raise funds through issue of 54EC bonds, under which subscribers can claim exemption of capital gains tax.

Citing the provisions of income tax rules, the NHAI prospectus has, however, clarified that only the interest earned on the new bonds will be tax-free, not the actual investments.

Moreover, investors will be liable to pay capital gains tax as applicable, it further said.

According to the NHAI prospectus, the bonds issue will worsen its debt-to-capital ratio from 0.11 to 0.29 if it raises Rs 10,000 crore from the markets. The debt-to capital ratio reflects the financing strengths of a firm.

Higher the ratio, the more debt the company has, compared to its equity.

As of June 30, the NHAI's total debt (including secured loans) stood at Rs 6,636.21 crore.

The bond issue has got AAA (stable) rating from the three agencies — Crisil, CARE and Fitch.

SBI Caps, ICICI Securities, Kotal Mahindra Capital and AK Capital Services have been appointed as the lead managers by the NHAI for the bonds issue.

 

How to apply?

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