National Highways Authority of India (NHAI) will launch a bond issue on December 28 to raise R10,000 crore to part-finance highway construction projects. The bonds are likely to have a coupon rate between 8% and 8.5%, official sources said requesting anonymity.
The interest earned from investment in bonds will be exempt from tax. This is first time that the government has opened a special window for NHAI to raise funds by issuing tax-free bonds. Currently, NHAI raises funds from the market through issue of 54 EC bonds that give subscribers an exemption from capital gains tax.
The Financial Express had reported on December 3 that NHAI is likely to issue bonds in the second half of December. The NHAI bonds issue is expected to be followed by Indian Railway Finance Corporation (IRFC), which seeks to raise R10,000 crore from the markets. Senior officials in IRFC said the corporation is waiting for NHAI issue to assess the market response.
As per the approval given to NHAI, the bonds have to be issued 100 basis points lower than the prevailing yield on government securities (G-secs) in case of private placement. However, in case of public issue the coupon rate has to be 50 basis points lower than that of G-secs.
NHAI sources said the authority, which awards national highway construction projects, has opted for a public issue as it feared low interest in case of private placement. The bonds will be listed on Bombay Stock Exchange and National Stock Exchange.
The issue proceeds will be used to meet liabilities on account of annuity and viability gap funding (VGF). NHAI pays private concessionaires in the form of annuity and VGF to make national highway projects financially viable.
NHAI?s debt to capital ratio will deteriorate from 0.11 to 0.29 after the issue. 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.
