The National Highways Authority of India (NHAI) is unlikely to borrow from the Employees’ Provident Fund Organisation (EPFO) in the current fiscal in an effort to rein in cost of funds. It had borrowed Rs 10,000 crore from the EPFO last fiscal in two tranches at an average coupon rate of 7.85%. Authorised to invest up to 45% of its annual incremental deposits in debt and related instruments (which may amount to some Rs 65,000 crore this year), the EPFO’s funds allocation is overseen by its five portfolio managers, including SBI Caps and ICICI Securities. Sources said since the EPFO has been getting over 7.5-8% returns from state government securities, the portfolio managers are not willing to lend NHAI at anything below 8%, which NHAI finds too expensive. NHAI has raised Rs 8,500 crore recently from Life Insurance Corporation of India (LIC) in two tranches at an average rate of 7.20%. Of its total Rs 15,025 crore borrowings so far in the current fiscal, it has raised Rs 3,000 crore through masala bonds at 7.30% and Rs 1,525 crore through market borrowings at 7.27%.
“For NHAI, the cost of borrowing is the primary criterion. Wherever we get debt at the cheapest possible rate, we will access that. NHAI also borrows in smaller quantum multiple times a year and that often comes at a cheaper rate,” said NHAI member, finance, Rohit Kumar Singh. EPFO chief provident fund commissioner VP Joy said it would always look for getting higher rate of returns and the decision of lending or park funds lay with the portfolio managers where the management did not have any say.
Under tremendous pressure to maximise returns from its investments, the retirement fund body pruned the interest rate on provident fund deposits for its subscribers to 8.65 % for 2016-17, the lowest in four years. Depending on its return on investments, the EPFO pays its subscribers interest on their deposits. The Centre has approved NHAI to borrow up to Rs 59,275 core in the current fiscal. However, even as the limit was same for the last fiscal, it could raise only Rs 33,064 crore in the year. This time, though, it may exhaust the permissible limit as it targets to spend Rs 94,732 crore with estimates of getting Rs 29,301 crore from budgetary support that includes cess and toll income.
The rest will have to come from the borrowings. NHAI has been assigned to construct 6,000 km and awarded 10,000 km of highways in the current fiscal by the ministry of road transport and highways compared with a total construction of 2,628 km and 4,355 km of awards in the last fiscal. However, against the target of constructing 1,150 km in the first quarter of the current fiscal, NHAI achieved only 670 km. On the award front, however, it is closer to the target of 183 km to achieve 165 km till June this fiscal.