NHAI initiates process to tie up ~40 billion via bond issue

The National Highways Authority of India (NHAI) has started the process to raise about ~40 billion through a bond issue in the domestic market, with the selection of lead bankers, including Axis Bank and SBI Caps.

“All the necessary clearances, including approval from the Department of Economic Affairs and Ministry of Road Transport and Highways, for the bond issue are in place and the ticket size would be big,” a senior official said.

The authority, which has the approval to raise ~100 billion in the current financial year, plans to raise only about ~40 billion in the first tranche for which the legal documentation is underway.

If retail investors will also be eligible to participate in the bond issue is yet to be finalised even as the road minister, Nitin Gadkari, recently said that they should invest in NHAI bonds to get greater returns.

The bond issue is part of the fund raising exercise of the NHAI, which recently signed a loan agreement with the State Bank of India for an unsecured loan worth ~250 billion. The loan agreement is for 10 years with three years in moratorium on repayments, the largest amount of loan to have been sanctioned to NHAI in one stroke by any institution.

The SBI offered to fund the entire requirement based on one month marginal cost of funds-based lending rate (MCLR) of 7.9 per cent, even less than LIC’s 8.51 per cent. The NHAI has traditionally relied on borrowing through long-term bonds issued to various investors, including LIC, Employees' Provident Fund Organisation (EPFO) and other qualified investors, and tax-free bonds and masala bond issued 2017.

The funds raised from these initiatives would be utilised towards project execution as the NHAI plans to award 20,000 km of projects and construct over 16,000 km during the current year, of which 9,700 km will be constructed by the road ministry and 6,000 km by the NHAI.

The per day construction target by the authority has been fixed at 45 km, even as it was able to achieve 27 km per day of construction, last fiscal.

The road ministry has a target of awarding 20,000 km — about 25 per cent more than the 17,055 km awarded during 2017-18.