National Highways Authority of India’s (NHAI) is offering tax-free secured redeemable non convertible bonds to raise Rs 1500 crore, with an option to retain oversubscription upto Rs 8663 crore.
It is the fifth tax-free bond issue in the current financial year after NTPC, PFC, REC and IRFC. For retail investors, the annualised coupon offered is 7.39% , 7.60% for tenure of 10 and 15 years, respectively.
Size of the Issue – NHAI is authorized to raise Rs. 24,000 crore from tax free bonds this financial year. The company has already raised Rs. 3,872 crore through private placement. Out of the remaining Rs. 20,128 crore, the company will raise Rs. 10,000 crore in this issue.
The issue will be open during 17-Dec-2015 to 31-Dec-2015
17-Dec-2015 – As per latest exchange data, bids for 21.2 crore bonds (of face value Rs 1,000 each) had come in for the issue, which at the most have 10 crore bonds on offer. This means demand witnessed was worth Rs 21,200 crore.
| National Highways Authority of India (NHAI) Tax Free Bonds |
||
| Details | Series I | Series II |
| Tenor | 10 Years | 15 years |
| Interest Paid | Annual | Annual |
| Coupon Rate | 7.39% | 7.6% |
| Effective Pre-Tax Yield (30% tax slab) |
10.69% | 11% |
| Effective Pre-Tax Yield (20% tax slab) |
9.31% | 9.57% |
| Effective Pre-Tax Yield (10% tax slab) |
8.24% | 8.47% |
| Minimum Application | Rs 5000 | |
| Maximum Application | Rs 10 lacs ( Retail) | |
For those in the highest tax bracket, tax-free bonds work well.
About the Company
NHAI is an autonomous body under the Ministry of Road Transport and Highway. As per the NHAI Act, NHAI is responsible for the development, maintenance and management of national highways entrusted to it by the Government of India. Given that NHAI is a government owned company, credit risk is low. Rating agencies Crisil, Care, IRPL and Icra have assigned AAA ratings to the issue.
Other Important Points
- The NHAI issue has two series of 10- and 15-year tenures which offer 7.39% and 7.60% a year, respectively, for retail investors.
- Retail investors can invest up to Rs.10 lakh across series. At least 40% of the issue is reserved for retail investors
- Interest is payable annually on 1 April every year. The interest earned every year is tax-free. So, if you invest Rs.1 lakh in the 15-year bond, you will receive Rs.7,600 per year, and this entire amount is your earning.
- Allotment will be on first come first serve basis; experts are optimistic about allotment given the large size of the issue.
- Long-term borrowings of the company are rated AAA equivalent by rating agencies Crisil Ltd (AAA/Stable), ICRA Ltd, CARE Ltd and India Ratings and Research Pvt. Ltd.
- Bonds will be listed on NSE & BSE
- Investors can choose to apply in demat as well as physical form. Demat account is not mandatory. However, if you want to sell/trade these bonds before maturity, it is mandatory to have a demat account. You can subscribe to them in physical form as well and keep them till maturity.
- NRI Investment: Non US NRI can invest in this issue.
Download the Form
You can download the Form from NHAI Website.
You can invest in NHAI Tax free bonds through your online brokerage accounts like ICICIDIrect, HDFC Sec, Reliance Sec, Sharekhan, etc
Taxation Aspects of Tax FREE Bonds
Read my Post – Taxation Aspects of Tax free Bonds?
Merits & Demerits of Tax free Bonds
Read – Tax free Bonds – Should you invest in these?
If the bonds are sold on the exchange at a premium, you will have to pay capital gains tax. Long-term capital gains is applicable on listed bonds if they are sold after one year and is calculated at 10% without indexation. And if you sell or transfer your bonds, the buyer (other than a retail investor) gets a coupon reduced by 25 bps where enhanced coupon for retail investors is applicable.
Allotment Status of NHAI Tax free Bonds
Youc an check the Allotment status of your NHAI Tax free Bonds application at link below by entering application number / PAN number:
https://mis.karvycomputershare.com/ipo/
Summary
For those in the highest tax bracket (30% or 20%) , can consider investing in tax-free bonds. They can allocate some portion of their debt investment allocation to tax free bonds. It is better to invest in DMAT mode as it allows liquidity and sell before maturity if needed.