Mumbai: State-owned National Highways Authority of India (NHAI) has raised Rs5,000 crore by selling bonds to Life Insurance Corp. of India (LIC) as it looks for long-term borrowing at cheaper rates to fund road projects, according to two people with direct knowledge of the deal.
NHAI sold 30-year bonds to the state-run insurer at a coupon rate of 7.24%.
The government plans to develop 40 economic corridors spanning 21,000km of roads, entailing an investment of Rs3 trillion. The total road length to be developed as expressways under the government’s Bharatmala project is around 51,000km.
NHAI sold 30-year bonds to the state-run insurer at a coupon rate of 7.24%
“NHAI placed with LIC a 30-year paper, which is the longest bond issued in India by any public sector organization. The money raised was at a competitive price and will be used to fund various road projects,” said first person on the condition of anonymity.
This is the second issuance of 30-year bonds by NHAI. In January 2017, the organization had raised Rs8,500 crore at a coupon of 7.22%.
The recently issued bonds are structured in such a way that NHAI has a right to call them back by repaying the investors, said one of the people cited above. Such call options are scheduled at the end of 10 years and 20 years.
Call back options also allow investors an opportunity to exit because unlike government bonds, which are seen as completely risk-free, a longer-term investment in non-government debt has comparatively few takers.
Queries emailed to the spokespersons of NHAI and LIC on Friday and Saturday, respectively, remained unanswered. Yudhvir Singh Malik, chairman, NHAI didn’t respond to phone calls and a message left on his cellphone.
NHAI’s bond plans come against the backdrop of India implementing its ambitious infrastructure development programmes in sectors such as electricity, roads and ports. India plans to invest as much as Rs3.96 trillion in creating and upgrading infrastructure in the current fiscal.
India has an ambitious highways construction goal of 41km a day. The current rate of construction is 22-23km a day.
According to bond dealers, NHAI typically raises funds through bonds maturing in five years and above because it funds road projects which take a long time to complete.
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However, NHAI’s bonds, rated AAA, have quasi-government status and hence are in high demand with local as well as foreign investors.
In May 2017, NHAI raised Rs3,000 crore through its maiden issuance of the so-called Masala bonds, which are rupee-denominated bonds sold overseas.The transaction marked the largest five-year bond issuance and the largest inaugural transaction in Masala bond market, according to a 12 May government statement.
Analysts say bonds from state-owned firms are attractive for foreign firms. According to Soumyajit Niyogi, associate director at India Ratings, local arm of Fitch Group, there has been high demand for AAA-rated papers of PSU from foreign players as yields on government bonds have fallen sharply. “Yield-wise, these papers are attractive to government bonds. Additionally, they also offer credit safety,” he said.
NHAI’s long-term borrowing programme for FY18 worth Rs59,000 crore has been rated AAA by CARE Ratings, according to information available on rating agency’s website.