NHAI - Tax Free Bonds
By Geetanjali Kedia
Introduction:
National Highways Authority of India (NHAI), has entered the debt capital market on 15th January 2014, with an issue of Tax Free Bonds of face value of Rs.1,000 each, in the nature of Secured Redeemable Non Convertible Debentures.
Issue Details:
Closing on 5th February 2014, issue has a size of Rs.1,000 crore, with an option in company’s hand to retain an over-subscription upto Rs.2,698 crore, taking total fund-raising to Rs. 3,698 crore. Minimum application amount is Rs. 5,000, and in multiples of Rs, 1,000 thereafter. Allotment will be on first come first serve basis.
Rating: AAA by CRISIL, CARE and BRICKWORK, indicating highest degree of safety regarding timely servicing of financial obligations
Listing: NSE and BSE. Bonds are to be issued both in physical and dematerialized form, hence a demat account is not necessary to buy these bonds. Trading in the bonds will necessarily be in the demat form.
What’s on offer:
The current bonds are being offered under two series with features as under:
| Particulars | Series 1 | Series 2 |
| Tenor | 10 Years | 15 Years |
| Frequency of Interest Payment | Annual | Annual |
| Coupon Rate (%) p.a. | ||
| 8.52% p.a. | 8.75% p.a. |
| 8.27% p.a. | 8.50% p.a. |
| Put / Call Option | None | None |
*Retail investor defined as resident individual, HUF and NRIs upto limit of Rs. 10 lakh
Allocation ratio: 40% for retail investors, 20% for HNIs, 30% for corporate, 10% for QIB
Rate of Return:
NHAI’s 15 year (Series 2) bonds carrying 8.75% pa coupon for retail investors, are comparable to 12.66% pre-tax return earned on other fixed income instruments, assuming the highest tax bracket of 30.9% for retail individuals. These rates are 10 basis points (0.10%) higher than IRFCL’s issue currently open for subscription carrying same AAA credit rating.
Since tax free bonds score over company NCDs due to longer duration and higher tax-efficient returns, no point comparing this issue with NCDs of ECL Finance, Manappuram (to close today), Muthoot and SREI Infra for investors in the highest tax slab of 30.90%. Those in the lower tax bracket of (0%, 10% or 20%) can consider the NCDs only if they have a lower time horizon for 3 or 5 years.
Recommendation:
NHAI bond issue is not the most attractive, due to relatively lower tenure of 15 years. Although coupon rate is higher than IRFCL, advise to wait for other tax free bond issues with 20 year bonds, which are likely to open for subscription over the next couple of months.
P.S.: Till the evening of 16th January 2014, Rs. 3,350 crore worth of subscription was already received for these bonds.