National Highways Authority of India (NHAI) is likely to issue tax-free bonds in the second half of December to raise R10,000 crore. Earlier expected in November, the issue was postponed due to poor market conditions.
Earlier this year, NHAI?which awards national highways projects?had considered private placement of bonds but the plan had to be scrapped due to fall in yield of government securities. In last one week alone, yield on the benchmark 10-year government security slid to 8.66% from 8.79%.
As per the government approval, NHAI could issue bonds at 100 basis points lower than the prevailing yield on government securities (G-secs). However, in case of public issue the coupon rate has to be 50 basis points lower than that of G-secs. A higher coupon rate would attract more buyers.
Sources said the bonds could have a coupon rate between 8% and 8.5%. ?The bond will be issued anytime between December 15 and 31,? an NHAI official told FE.
The proceeds would be used to meet liabilities on account of annuity and viability gap funding (VGF). However, the issue would worsen NHAI?s debt to capital ratio from 0.11 to 0.29, a draft prospectus submitted to Bombay Stock Exchange showed. A high debt to capital ratio reflects financial weakness as higher debt would increase cost of servicing loans. At the end of March, the highway authority?s total borrowings stood at R6,800.69 crore.
NHAI releases periodic payments to private concessionaires in the form of annuity and VGF to make national highway projects financially viable. Funds are required as the government wants to increase projects being awarded every year. This year’s target is close to 8,000 km, higher than last year’s 5,100 km and 3,360 km a year before that.
This is the first time that NHAI has been allowed to raise funds through tax-free bonds. In February, Housing & Urban Development Corporation, Indian Railway Finance Corporation and ports had been allowed to raise a total of R20,000 crore. NHAI currently raises funds through issue of 54 EC bonds that entitle subscribers to claim exemption from capital gains tax.
The bonds will be listed on the Bombay Stock Exchange and the National Stock Exchange, and would come with maturity periods of 10 and 15 years. NHAI has selected SBI Capital Markets, AK Capital Services, ICICI securities and Kotak Mahindra Capital as lead managers of the issue.
SMC Capital head Jagannadham Thunuguntla said: ?NHAI must be waiting for the upcoming monetary policy review by Reserve Bank of India before issuing bonds. NHAI could offer lower coupon rate, reducing its interest liability, if RBI cuts interest rates in the review.? RBI is expected to review monetary policy on December 16.
