The tax-free bond issue floated by NTPC has been oversubscribed over three times on the day of launch. Now the company plans to pre close the issue within a day or two.

A tax-free bond is an instrument where the investor is not required to pay any tax on the interest earned. However, unlike instruments, such as public provident fund (PPF) and life insurance, the principal investment will not be deducted from the total income for the purpose of tax calculations.

Rs 750-cr green shoe “As against Rs 1,000 crore, NTPC has already collected about Rs 3,310 crore — Rs 2,310 crore above the base size,” a statement issued by the company said. The issue opened on Tuesday and is scheduled to close on December 16. The company has launched a tax-free bond issue after a gap of two decades. The issue comes with a green shoe option of Rs 750 crore.

The qualified institutional bidder category was oversubscribed 4.2 times, garnering Rs 423 crore against the allocation of Rs 100 crore. Corporates contributed Rs 1,374 crore against the allocation of Rs 250 crore, indicating an oversubscription of 5.5 times.

High net worth individual chipped in with Rs 851 crore against an allocation of Rs 250 crore. This quota was oversubscribed 3.4 times. Even retail investors put in Rs 663 crore, compared with an allocation of Rs 400 crore. This is an oversubscription of 1.67 times.

2% cheaper The public sector power producer said that it has opted for raising debt through tax-free bonds because it is at least 2 per cent cheaper than domestic loans, while foreign borrowings carry the risk of volatility. Currently, NTPC gets domestic loans at around 10.25 per cent, while tax-free bonds have coupon rates ranging from 8.41 per cent to 8.91 per cent.

The power producer has planned a capex of Rs 1.5 lakh crore during the 12th Five Year Plan. Of this, it would borrow 75 per cent or about Rs 1 lakh crore. Till now, it has tied up loans worth about Rs 15,000 crore. NTPC, which has 18 per cent of India’s installed power capacity and generates a third of its power, would use the proceeds of the bond issue for capital expenditure and to service debts.


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