NHAI bonds subscribed four-fold in 48 hours; PFC issue follows on Thursday.
With interest rates seemingly having peaked, the time is ripe for infrastructure companies to raise long-term funds. One good example is the public issue of tax-free bonds by the National Highways Authority of India (NHAI), already subscribed four times. Power Finance Corporation (PFC) and Indian Railway Finance Corporation (IRFC) are set to follow.
NHAI’s tax-free bond issue opened yesterday and has got applications worth more than Rs 20,000 crore for a subscription of Rs 5,000 crore worth (there is also an over-allotment option of Rs 5,000 crore) of debt paper. The issue is open till January 11, though there is also an option to close as early as tomorrow.
Institutional investors were the most aggressive. The Qualified Institutional Placement (QIP) category alone received Rs 10,000 crore of applications against a reservation of Rs 4,000 crore. Applications from high net worth individuals (HNIs) were Rs 6,000 crore and Rs 4,000-5,000 crore worth of applications came from retail investors. The AAA-rated bonds carry coupon rates of 8.2 per cent for 10 years and 8.3 per cent for 15 years.
PFC will throw open its issue of tax-free bonds at the same rates tomorrow. The issue will remain open for subscription till January 16. PFC aims to raise Rs 4,033 crore; it has already raised Rs 967 crore through private placement.
The coupon rate on these bonds is linked to the previous month’s closing yield of government securities. In November, yields on the 10-year benchmark government bond had nearly touched nine per cent. “We had decided the rate of 8.5 per cent then, as the due diligence for the public issue was on,” said an arranger to the NHAI bond issue. However, yields fell towards the end of the month, as the central bank had started buying bonds via open market operations, to support liquidity. “Hence, we could finalise at a lower rate of 8.2 per cent by the time of issue,” said the official.
While investors are bound to find these rates attractive, the issuers should also benefit, as interest rates are gradually expected to fall. “Most investors are of the view that interest rates will fall next financial year. So, from that perspective, 10-15 years holding at these rates is expensive for the issuers. However, looking at the high rate of inflation, a drastic fall in rates can be ruled out,” said Gopal Bhattacharya, managing director and head of global markets for India at Societe Generale.
With due diligence in progress, IRFC’s public issue of tax-free bonds is expected to hit the market in the second to last week of January 2012. Of the Rs 10,000 crore permitted to be raised, it has already raised Rs 975 crore through private placement.
“If the yields on government bonds settle at around 8.5 per cent by December-end, the coupon rate on IRFC’s bonds can be expected on the same lines as NHAI,” said a treasury official of a public sector bank. On Thursday, yields on the 10-year benchmark bond closed at 8.54 per cent.
Housing And Urban Development Corporation was also given approval to raise Rs 5,000 crore through tax-free bonds, but is yet to go public. It been able to raise Rs 1,000-2,000 crore through two rounds of private placements.
