National Highways Authority of India (NHAI) will launch its first ever tax-free bonds issue of Rs 10,000 crore on December 28.The issue will close on December 30, a senior Road Transport Ministry official said.The coupon rates will be 8.2% for 10 years and 8.3 % for 15 years.
An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits, which are currently giving about 9% (pretax) returns.Also, with interest rates expected to slide over the next few months, money managers are hoping to generate higher returns by selling these bonds at a relatively higher coupon rate.In the event of a fall in interest rates, wealth managers expect 5-10% price appreciation on premature encashment of the bond.
In this year's Budget, the government had allowed NHAI to raise Rs 10,000 crore from the tax-free bonds, an instrument never used by it earlier. Till now, it used to raise funds through issue of 54EC bonds, under which subscribers can claim exemption of capital gains tax.Citing the provisions of Income Tax rules, the NHAI prospectus has, however, clarified that only the interest earned on the new bonds will be tax-free, not the actual investments.Moreover, investors will be liable to pay capital gains tax as applicable, it further said.
Read Public release on NHAI bonds tax free
The issue opens on 28th December, 2011 and is expected to remain open for 14 days (minimum 3 days). The issue will be of Rs. 5000 crores with a green shoe option to retain additional Rs. 5000 crores. The coupon rates will be 8.2% for 10 years and 8.3 % for 15 years. To benefit retail investors, 30% of the Bonds issue has been reserved for them. NHAI intends to deploy the Issue proceeds towards financing of the various projects being implemented by it under the NHDP and other NH projects as approved by Government of India.
NHAI is entrusted with management of a network of 70,934 km of National Highways in India. It has been authorized by the CBDT notification to raise funds upto 10,000 Crore through public issue of Tax Free Secured Redeemable Non Convertible Bonds of face value of Rs. 1,000 each in the nature of Debentures having tax benefits under the Section 10(15)(iv)(h) of the Income Tax Act, 1961, as amended, in one or more tranches in the Financial Year 2011-12.. For this purpose, it has filed the Draft Shelf Prospectus dated November 23, 2011, Shelf Prospectus dated December 13, 2011, Addendum to the Shelf Prospectus dated December 22, 2011 and Prospectus Tranche -1 dated December 22, 2011 (referred as the “Prospectus”) with the designated stock exchange, BSE Limited (“BSE”). The Prospectus has been filed with the National Stock Exchange of India Limited (“NSE”) and Securities and Exchange Board of India (“SEBI”) also. The Issue size under Tranche-1 aggregates to ` 5,000 crores with an option to retain over-subscription upto Rs. 10,000 crores.
These Bonds are being issued in two series viz. Tranche 1 Series 1 and Tranche 1 Series 2 having a tenure of 10 years and 15 years respectively. The coupon rate for the Tranche 1 Series 1 and Tranche 1 Series 2 would be 8.20% per annum and 8.30% per annum respectively. The interest is payable annually on October 1st of each year.
The Tranche 1 Bonds proposed to be issued have been rated as ‘CRISIL AAA/Stable’ by CRISIL, `CARE AAA` by CARE and ‘FITCH AAA (IND) with stable outlook’ by FITCH. The rating of the Bonds issued by CRISIL and CARE indicate highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk. The rating of the Bonds by FITCH indicates highest rating assigned in its national rating scale. This rating is assigned to the "best" credit risk relative to all other issuers or issues in the country. The Bonds offered through this Issue are proposed to be listed on the BSE and the NSE.
The Issue shall remain open from December 28, 2011 to January 11, 2012 with an option to close earlier or extend up to a maximum period of 30 days at the discretion of the Board of NHAI subject to necessary approvals, by intimating through an advertisement issued in a leading national daily. However, the Issue shall remain open for a minimum of 3 days. The funds raised through this Issue will be used for part financing of the various projects being implemented by NHAI. SBI Capital Markets Limited and A.K. Capital Services Limited are the Lead Managers to the Issue. Additionally, ICICI Securities Limited and Kotak Mahindra Capital Company Limited are also involved for marketing of the Issue.