NHAI, IRFC get nod to raise Rs 30,000 crore by selling tax-free bonds

MUMBAI/NEW DELHI: The finance ministry has mandated National Highway Authority of India ( NHAI) and Indian Railways Finance Corporation ( IRFC) to raise Rs 24,000 crore and Rs 6,000 crore, respectively, by selling tax-free bonds, four people familiar with the matter told ET.

The ministry has given its inprinciple approval to NHAI and IRFC, but the green light may include a clause that issuers, after raising funds, have to lend to respective sectors below the bank rates (base rates), said a government official.

When contacted, IRFC managing director Rajiv Datt confirmed the matter. An executive from NHAI said that the communiqué from the ministry is yet to arrive, but agreed to the ticket size.

"We obtained an in-principle approval for Rs 6,000 crore. Besides taxfree bonds, we would raise aboutRs 11,655 crore through rupee-denominated bonds and domestic corporate bonds," Datt said.

The government is yet to make a formal announcement on the whole tax-free bond ticket sizes as it has not yet decided on the allocation to the irrigation sector where National Bank for Agriculture and Rural Development ( Nabard) is likely to get the mandate.

Earlier in the Union Budget, finance minister Arun Jaitley had mentioned raising tax-free bonds aimed at funding roads, railways and irrigation projects with retail money, without giving details. Retail investors are the major subscribers of such securities. ET had reported that the government might be mandating Rs 30,000-40,000 crore for such bond issuances cumulatively.

The higher share of tax-free bonds will help NHAI to fund road projects in the country. Road minister Nitin Gadkari had planned to award 15,000 km of roads by March 2016 spread over two fiscal years. The target was at 8,500 km in 2014-15.

The government is also working on hybrid models to raise funds for these projects since many of the companies in this segment are already deep in debt.

The government plans to sell highways projects worth Rs 1 lakh crore to foreign pension and insurance funds to attract overseas investments into the sector, Gadkari said on Wednesday. The rate of interest is also likely to be in the range of 7-7.25 per cent with a spread, or gap, of 75-85 basis points below the ten-year benchmark bond yield. These rates are lower than 8.75-9 per cent that such bonds offered in fiscal 2014.

Tax is not payable on the interest earned on such bonds, making them look more attractive than taxable debt instruments.

During 2013-14, the government had targeted to raise Rs 50,000 crore against which designated stateowned companies mopped upRs 49,200 crore. Prior to this, it was a fiasco for those securities as companies could raise only Rs 18,000 crore against a targeted Rs 60,000 crore. Tax-free bonds were introduced in 2011-12 when bond floatation was for Rs 30,000 crore attaining the targeted size.