NHAI Tax Free Bonds – January 2014

This post is written by Shiv Kukreja, who is a Certified Financial Planner and runs a financial planning firm, Ojas Capital in Delhi/NCR. He can be reached at [email protected]

As National Highways Authority of India (NHAI) launches its tax-free bonds issue next week from January 15th i.e. the coming Wednesday, it would become the ninth such company to do that this financial year after REC, HUDCO, IIFCL, PFC, NHPC, NTPC, NHB and IRFC. NHAI would carry coupon rates of 8.75% per annum for the 15-year duration and 8.52% per annum for the 10-year duration.

Though the rates are not as attractive as National Housing Bank (NHB) offered, they are still better than IRFC. Like IRFC, NHAI has also decided not to offer the 20-year option. But, unlike IRFC, the issue is relatively smaller in size and will remain open for four more days i.e. fifteen days, to close on February 5th, Wednesday again.

Size of the Issue – NHAI is authorised to raise Rs. 5,000 crore from tax-free bonds this financial year, out of which it has already raised Rs. 1,301.60 crore through a private placement carried out on November 25, 2013. So, NHAI plans to raise the remaining Rs. 3,698.40 crore from this issue, with Rs. 1,000 crore as the base issue size and Rs. 2,698.40 crore as the green-shoe option.

Rating of the Issue – Being the nodal agency for the development and maintenance of national highways across the country and an autonomous body under the Ministry of Road Transport and Highways, this issue of NHAI has been rated as ‘AAA’ by three credit rating agencies, CRISIL, CARE and Brickwork Ratings, which is again the highest rating by these rating agencies.

Investor Categories & Allocation Ratio – The investors have been classified in the following four categories and each category will have certain percentage of the issue size reserved during the allocation process:

Category I – Qualified Institutional Bidders (QIBs) – 10% of the issue i.e. Rs. 369.84 crore is reserved

Category II – Non-Institutional Investors (NIIs) – 30% of the issue i.e. Rs. 1,109.52 crore is reserved

Category III – High Net Worth Individuals including HUFs – 20% of the issue i.e. Rs. 739.68 crore is reserved

Category IV – Resident Indian Individuals including HUFs – 40% of the issue i.e. Rs. 1,479.36 crore is reserved

NRI Investment – Non-Resident Indians (NRIs) and Qualified Foreign Investors (QFIs) would be disappointed to know that they have been left out as ineligible to invest in this issue.

Allotment on First Come First Served Basis – Subject to the allocation ratio, allotment will be made on a first come first serve (FCFS) basis in each of the investor categories, based on the date of upload of each application into the electronic system of the stock exchanges.

Demat/Physical Option – Investors have the option to apply for these bonds either in physical/certificate form or in demat form, whichever they are comfortable with. But, it is mandatory to have a demat account to sell/trade these bonds. Interest will still get credited to your respective bank accounts through ECS or to that bank account which is linked to your demat account.

Lock-in Period, Premature Redemption & Listing – As these are not tax saving bonds, there is no lock-in period with these bonds. But, at the same time, the investors cannot redeem these bonds back to the company before the maturity period gets over. In order to encash your investment before maturity, you’ll have to compulsorily sell these bonds on the stock exchange(s) where they have been listed for trading.

NHAI has decided to get these bonds listed on both the stock exchanges, National Stock Exchange (NSE) as well as Bombay Stock Exchange (BSE). As always, the company will get these bonds allotted and listed within 12 working days from the closing date of the issue.

Interest on Application Money & Refund – NHAI will pay interest to the successful allottees on their application money at the applicable rate of 8.52% p.a. or 8.75% p.a. as the case may be. It will be calculated from the date of realization of application money up to one day prior to the deemed date of allotment. Investors, who don’t get these bonds allotted, will get interest @ 5% p.a. on their refund money.

Face Value of the bonds & Minimum Investment – NHAI has decided to fix the face value of these bonds at Rs. 1,000 each and minimum application size at 5 bonds. So, the investors will have to invest at least Rs. 5,000 with the company.

Interest Payment Date & Record Date – NHAI has fixed the interest payment date to be March 15. So, the investors investing in this issue will get their first due interest paid on March 15, 2014 and subsequently on March 15 every year, except Sundays and other public holidays.

Record date will be fixed 15 days prior to the interest payment date, except Saturdays, Sundays and other public holidays.

Out of thirteen companies which have been allowed to issue tax-free bonds this financial year, six companies, REC, PFC, NHPC and NTPC, HUDCO and NHB have already exhausted their quota of fund raising through their public issues. While IRFC issue is open and NHAI coupon rates are out, only five other companies, IIFCL, IREDA, Airport Authority of India, Cochin Ship Yard and Ennore Port are left to do such exercise.

While nobody knows in which direction the G-Sec rates are headed, the investors are now left with very few choices to take advantage of these tax-free bonds this financial year. If you still think that inflation, India’s fiscal deficit and G-Sec rates are headed higher, you can probably wait for either IIFCL to launch its Tranche III issue or IREDA to launch its maiden tax-free bonds issue. Otherwise, I think you have only IRFC and NHAI issues to make a choice.

Application Form of NHAI Tax Free Bonds

Note: As per SEBI guidelines, ‘Bidding’ is mandatory before banking the application form, else the application is liable to get rejected. For bidding of your application, any further info or to invest in NHAI Tax Free Bonds, you can contact me at +919811797407

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