National Highways Infra NCD Issue review - (Apply)

•    NHIT is a Project SPV arm of NHAI and has good orders on hand.
•    It has started generating profits from FY22 onwards.
•    These NCDs are purely for long-term regular income instruments.
•    It has a good rating and being PSU, investors may consider investing.

ABOUT COMPANY:
National Highways Infra Trust (InvITs)- (NHIT) is a registered infrastructure investment trust under the InvIT Regulations. It currently has a right to toll, operate and maintain a portfolio of five Initial Toll Roads in the Indian states of Gujarat, Rajasthan, Telangana, and Karnataka, and intends to toll, operate and maintain a portfolio of three Target Toll Roads in the Indian states of, Telangana, Maharashtra, Uttar Pradesh, and Madhya Pradesh under the Toll Operate Transfer ("TOT") model conceived by NHAI. 

These Toll Roads are operated and maintained pursuant to concessions granted by the NHAI. The Initial Toll Roads comprise five stretches spanning a total length of approximately 389 kms and the Target Toll Roads comprise three stretches spanning a total length of approximately 246 kms.

NHIT's Sponsor is NHAI, an autonomous authority of the GoI (Government of India) under the MoRTH constituted on June 15, 1989, by an Act of the Indian Parliament titled - The National Highways Authority of India Act, 1988 (the "NHAI Act").  NHAI was operationalized in February 1995 with the appointment of a full-time Chairman and other members of the board. The functioning of NHAI is governed by the NHAI Act and the rules, and regulations framed thereunder.

The Project SPV has entered into eight (8) independent Concession Agreements with the NHAI for concessions of each of the Toll Roads. It has satisfied all conditions precedent and commenced Concessions on December 16, 2021, in accordance with the terms of the Concession Agreements for the Initial Toll Roads and expects to satisfy all conditions precedent and commence Concessions for the Target Toll Roads in accordance with the terms of the Concession Agreements for the Target TOT.

Under Project SPV, NHIT has five Initial Toll Roads projects and three Toll Roads. NHIT's Sponsor, NHAI is India's national agency responsible for the development, maintenance, and management of India's national highways network. NHAI has a consistent track record of growth and operational performance. It has been entrusted with the National Highways Development Project ("NHDP"), which along with other minor projects, has vested in it 50,329 kms of national highways for development, maintenance, and management. As part of the NHDP, NHAI infuses funds into immediate areas of development and enables private sector participation bringing about a healthy participatory economy.

ISSUE DETAILS:
To part finance its plans for funding Project SPVs and general corporate purposes, NHIT is coming out with its InvITs NCDs having a face value (FV) of Rs. 1000 each comprising three separately transferable and redeemable principal parts (STRPP). It has planned STRPP-A for FV Rs. 300 each, STRPP-B for FV Rs. 300 each, and STRPP-C for FV Rs. 400 each for an aggregate base amount of Rs. 750 cr. It has a green shoe option to retain oversubscription to the tune of Rs. 750 cr. making the overall debt issue size of Rs. 1500 cr. Each series of STRPP has 15000000 NCDs and are carrying a coupon rate of 7.90%. The company has allocated the issue as 25% for Institutions, 25% for Non-Institutions, 25% for HNIs, and 25% for Retail investors. 

The issue opens for subscription on October 17, 2022, and will close on or before November 07, 2022. Post allotment, NCDs will be listed on BSE and NSE. NHIT will spend Rs. 16.97 cr. for this debt issue process. From the residual amount of Rs. 1483.03 cr. it will spend at least 75% on Project SPVs and related expenses/ repayment of bridge loans, and a maximum of up to 25% for general corporate purposes.  

The minimum application is to be made for 10 NCDs (i.e. Rs. 10000) (comprising of 10NCDs each for STRPP-A, STRPP-B, and STRPP-C) and in multiples of 1 NCD (i.e. Rs. 1000) thereon, thereafter. Interest at the rate of 7.90% will be paid semi-annually. These NCDs have a tenor of 13 years for STRPP-A, 18 years for STRPP-B, and 25 years for STRPP-C, indicating a very long-term debt offer.  

The issue is jointly lead managed by JM Financial Ltd., A K Capital Services Ltd., ICICI Securities Ltd., SBI Capital Markets Ltd., and Trust Investment Advisors Pvt. Ltd., while KFin Technologies Ltd. is the registrar to the issue. SBICAP Trustee Company Ltd. is the debenture trustee.

This Issue has been rated 'CARE AAA/Stable' by CARE Ratings Limited and rated as 'IND AAA/Stable' by India Ratings and Research Private Limited. The ratings provided by CARE Ratings Limited and India Ratings and Research Private Limited may be suspended, withdrawn, or revised at any time by the assigning rating agency and should be evaluated independently of any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should take their own decisions. 

The Issuer shall pay interest, over and above the agreed coupon rate, in connection with any delay in the allotment, refunds, dematerialized credit, payment of interest, the redemption of the principal amount beyond the time limits prescribed under applicable statutory and/or regulatory requirements, at such rates as stipulated/ prescribed under Applicable Law. The Issuer shall pay up to 2% per annum to the NCD holders, over and above the agreed coupon rate, till the execution of the debenture trust deed if the Issuer fails to execute the debenture trust deed within such period as prescribed under Applicable Law.

The redemption of the respective STRPP shall be made in equal annual instalments starting from (i) the 8th anniversary of the Deemed Date of Allotment for STRPP A, (ii) the 13th anniversary of the Deemed Date of Allotment for STRPP B, and (iii) the 18th anniversary of the Deemed Date of Allotment for STRPP C, more particularly set out in the Redemption Schedule, but their maturity dates will be after 13 yrs, 18 yrs and 25 yrs for STRPP A, B, and C respectively. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last two fiscals, NHIT has (on a consolidated basis) posted total income/net profit - (loss) of Rs. NIL / Rs. - (0.68) cr. (FY21), and Rs. 149.75 cr. / Rs. 68.36 cr. (FY22). For Q1 of FY23 ended on June 30, 2022, it earned a net profit of Rs. 62.80 cr. on a total income of Rs. 138.49 cr. Thus it has already started generating net profits from FY22.