Investors will soon get the option of investing in tax-free infrastructure bonds worth Rs 10,000 crore, as the National Highways Authority of India (NHAI) plans to come out with a public issue by the middle of November.
“We plan to raise the entire amount through a public issue in one go, because we need money to invest in the highways,” said a senior NHAI official, who did not want to be identified.
He said there were risks of going into the market with such huge amount in one go but is hopeful of the issue getting fully subscribed. “Many firms have sector-wise cap on investments to be made in the market. Since this is the first time we are coming out with this fund for the roads sector, the market will have appetite for our fund,” the official added.
NHAI had earlier planned to go for private placement in order to raise funds faster but later decided to go in for the public issue due to the prevailing interest rate scenario. “The government has approved our issue at a rate 50 basis points less than the G-sec rate for public issue or 100 basis points less than the government securities (G-sec) rate for private placement. The G-sec rate is around 8.6 per cent and no one would subscribe the issue at 7.6 per cent. Even at 8.1 per cent, the issue is not that lucrative,” said the official.
In the Budget this year, the government, for the first time, has allowed NHAI to raise Rs 10,000 crore for the roads sector. Earlier, the highways authority used to borrow money from the market and raise it for short-term through 54EC bonds.
Raising funds is a part of NHAI’s financial plan to raise Rs 63,000 crore in the next 20 years. The highways authority will use this to make the payment for its build, operate and transfer (annuity) projects and viability gap funding.
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Annuity is a model of road building. In this model, the developer builds the road and the government pays it in installments. The government has a huge annuity liability of Rs 24,386 crore for 41 projects.
Viability gap funding is the payment made by the government to make a project financially viable.
NHAI has announced to award 59 projects covering 7,994 km with a total cost of around Rs 60,000 crore. But in the current financial year, it does not plan to borrow any money apart from Rs 10,000 crore from the market.