NHAI's tax-free bond issue likely to sail through

MUMBAI: The tax-free bonds that the National Highways Authority of India, or NHAI, will start selling on Wednesday are expected to comfortably meet the fund-raising target of Rs 3,698 crore in contrast with those being sold by Indian Railways Finance Corp, which is struggling to reach its target.

"There is a lot of optimism about the NHAI issue among investors," said Ashish Agarwal, executive director at AK Capital. "In 2011, they had brought India's first ever tax-free bond issue and garnered huge response. We expect the current issue to be closed in this week with huge investor interest."

While the NHAI bonds offers a few basis points more than IRFC, the highways management agency is also perceived as being part of the government, while the latter is seen as a unit of the Railways. Both the issues are AAA-rated.

"Investors regard IRFC as a public sector unit, while NHAI is seen as the government itself as it was set up by an act of Parliament," said an investment banker who's an arranger for both the issues. He did not wish to be identified. "NHAI bonds are very liquid in the secondary market."

NHAI is offering 8.52% and 8.75% over 10 and 15 years, respectively, to retail investors, who can invest up to 40% of the issue size. The core issue size is 1,000 crore with an option to retain over-subscription up to Rs 2,698 crore.