NTPC became the first company to benefit from lower withholding tax on external commercial borrowing (ECB) when it raised $500 million on Monday through dollar-denominated senior unsecured 10-year bonds. Last Friday, the government had lowered the withholding tax on interest payment by Indian companies on long-term infrastructure bonds in foreign currency.
This is the third offering by the state-owned power company under its $2-billion medium term note (MTN) programme, launched in 2006. Till date, $1.3 billion has been raised through the MTN route.
The offer was subscribed eight times, which helped the company price the bond at 305 basis points above the US treasury (UST), cheaper than the initial guidance of 325 basis points above the UST. This way, the bond had coupon at 4.75 per cent, which is the lowest coupon ever achieved by the company for its international bonds.
“The strong investor response to our bond offering reflects the superior credit quality of the company and is a recognition of its leadership position in the Indian power industry. The speed of execution of the transaction demonstrates NTPC’s responsiveness to market opportunities,” said Arup Roy Choudhury, chairman and managing director.
The company has a robust portfolio of projects under execution and it intends to use the proceeds of the issue to finance its ongoing as well as new power projects. NTPC is also the first public sector company to issue a bond offering in 2012. Barclays Capital, Citigroup, Deutsche Bank and The Royal Bank of Scotland were the bookrunners. In terms of geographical distribution, Asia took the bulk of the transaction at 62 per cent. The supplemental demand from Europe and offshore US accounted at 31 per cent and seven per cent, respectively.
“We see the reduction in withholding tax to five per cent as a key driver for increased issuance activity in the US dollar bond markets by Indian corporates,” said Rajiv Nayar, head of capital markets origination at Citi India. “This certainly sets the right tone for other Indian corporates to follow,” he added.
The lower withholding tax would benefit the infrastructure sector that is defined as power, telecommunication, railways, roads including bridges, sea port and airport, industrial parks, urban infrastructure (water supply, sanitation and sewage projects), mining, exploration and refining, and cold storage.
Companies do not need any specific approval to use the reduced withholding tax rate; the government has given a pre-approval on the condition that the ECB guidelines for the cost ceiling and end-uses are met.
