The scramble to raise funds from overseas markets is now apparent among Indian infrastructure companies. Indian Railways Finance Corporation (IRFC) is the latest to join the bandwagon raising $300 million through dollar denominated five-year bonds.
The reduction in withholding tax rate on infrastructure companies' external commercial borrowings (ECB) combined with higher borrowing cost locally appear to have convinced IRFC in raising funds abroad. NTPC was the first company to benefit from lower withholding tax when it raised $500 million last week through dollar denominated senior unsecured 10-year bonds.
IRFC's issue was subscribed 12 times, which allowed the company to price the bonds at 280 basis points above the US Treasury (UST), cheaper than its initial guidance of 310 basis points above the UST. The pricing was also lower than NTPC's offer, which was at 305 basis points above the UST.
This way, IRFC's the bonds carry a coupon of 3.417%. "The deal is a great testament of such strong investor interest in a rare quasi-sovereign Indian credit such as this. A 12 times oversubscribed order book and 30 basis points tightening from initial guidance to final outcome is truly a remarkable feat," David Greenbaum, head of debt origination at Deutsche Bank for South Asia region, said.
Deutsche Bank along with Barclays, Citi, JP Morgan and Bank of America Merrill Lynch managed the issue.
"As a 100% owned primary financing arm of the Ministry of Railways, IRFC is viewed as one of the closest proxy to India sovereign in the international markets. Additionally, a letter of undertaking by the Ministry of Railways provided additional comfort and made it a unique selling proposition, which drew massive investor interest for this trade," Syed Zafar, managing director for capital markets and treasury solutions at Deutsche Bank in India, said.
Merchant bankers believe that the reduction in effective rate of withholding tax to 5.25% from 26.7% is likely to encourage a few more companies in the infrastructure space to exploit fund raising opportunities abroad.
NTPC is already firming up plans to re-visit overseas markets and plans to raise another $700 million next calendar year.