After postponing its offshore rupee-denominated bond issue, NTPC is now looking to raise money via dollar-denominated bonds in January, sources close to the development told FE.
Ahead of the dollar bonds launch, the power producer has approached the Reserve Bank of India (RBI) seeking some clarifications on the new External Commercial Borrowing (ECB) guidelines. “The company might go for a $500 million bond issue in January. As of now, we are waiting for the RBI’s clarifications and the Fed meet to be able to gauge the market,” sources said.
Meanwhile, the state-owned firm priced its 10-year bonds worth R500 crore at 8.19% on Thursday, according to bond arrangers. The yield is at least 50-70 basis points lower than that demanded by investors for the proposed Masala bond issue. “The issue received a good response from investors and attracted bids close to R1,200 crore at 8.19% levels itself,” a bond arranger said.
In the revised ECB framework, the central bank has introduced three tracks. Track 1 comprises medium term foreign currency denominated ECB with a minimum average maturity (MAM) of 3/5 year. Track 2 consists of long term foreign currency denominated ECB with MAM of 10 years and track 3 comprises rupee-denominated ECB with MAM of 3/5 years.
Since the revised framework places infrastructure companies in track 2, NTPC is seeking clarity on whether it will be allowed to raise funds with a tenure of less than 10 years because the MAM in this track has been stated as 10 years.
NTPC’s proposed masala bond issue was reportedly postponed because investors were looking for a yield that was higher than that in the domestic market. Given the PSU has raised funds at a yield as low as 8.19% for ten-year money the Masala bonds now appear to be a costlier source since investors have been wanting more for a five-year paper.
Investors tend to ask for a premium in case of Masala bonds since the currency risk lies with them and hedging their exposure fully would have a considerable impact on their gains. The 5% witholding tax for foreign portfolio investors (FPIs) is also a burden on the issuer.