NHAI Tax Free Bonds offer review Dec 2015

Published on Saturday, December 12, 2015 by Dilip Davda

In last two months we marked four Tax Free offers that received overwhelming response as HNIs prefer to park their money for long term tax free gains in the wake of cooling down in interest rates going forward. Last offer from IRFC got over Rs. 10800 crore against aggregate offer size of Rs. 4532 crore.

This week we have tax free bonds offer from National Highway Authorities of India (NHAI) that is planning to mobilize Rs. 1000 crore via issuance of tax free secured redeemable non-convertible bonds. With an option to retain oversubscription to the tune of Rs. 9000 crore the aggregate offer size is Rs. 10000 crore. These bonds have face value of Rs. 1000 each and minimum application is to be made for 5 bonds and in multiple of 1 bond thereon, thereafter. It has tenure of 10 years and 15 years only with a coupon rate of 7.14% and 7.34% for category I,II and III(non-retails), 7.39% and 7.60% for category IV i.e. retail investors for the said tenures. Funds mobilized with this issue will be used in funding the various model highway projects. NHAI will pay 5% interest on refund money, if any.

Allotment is available in demet as well as in physical mode, however, trading will take place only in demat mode. Issue opens for subscription on 17.12.15 and will close on or before 31.12.15. Issue is managed by SBI Capital Markets Ltd, A K Capital Services Ltd, Axis Capital Ltd, Edelweiss Financial Services Ltd and ICICI Securities Ltd. SBICAP Trustee Co. Ltd is the Trustee for bond holders and Karvy Computershare Pvt Ltd is the registrar to the issue. Post allotment, these bonds will be listed on BSE and NSE.

These bonds are graded as IND AAA by IRRPL, CARE AAA by CARE, ICRA AAA by ICRA and CRISIL AAA/Stable by CRISL indicating highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.

Company has suffered a setback due to slowdown in infra projects related to roads. But as we are now seeing major investment lined up for road infra developments, this company will regain its lost glory once again. As its debt-equity ratio is at a comfort level, it can raise the necessary funds to speed up the developments.

Conclusion: As the interest rates are set to cool down going forward, this offer with above 7% tax free returns worth considering.

DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor prior to making any actual investment decisions, based on information published here. Any reader taking decisions based on any information published here does so entirely at own risk. Above information is based on RHP and other documents available as of date coupled with market perception. Author has no plans to invest in this offer.