Why is the National Highways Authority of India offering to pay more to investors for its tax-free bonds to raise ₹10,000 crore, days after a similar bond issue by IRFC at lower coupon rates raised ₹4,532 crore, and was oversubscribed to the extent of ₹10,800 crore?

Incidentally, both NHAI and Indian Railway Finance Corporation are government-backed and enjoy the same credit rating.

Raising funds @ lower cost While NHAI’s move may be attractive for investors, some officials are baffled as they feel that it defies the very rationale of raising funds from the market at the lowest cost, especially by two government bodies with similar ratings.

“In the backdrop of low-cost funding, NHAI could have at least matched the rate if not improve upon it. How is this any different from bids where it looks to get lowest costs?” said a senior NHAI official.

NHAI, which opens its bond issue on Thursday, is looking to raise ₹1,000 crore, with a green shoe option to raise another ₹9,000 crore. Effectively, if the response is good, NHAI can raise ₹10,000 crore.

However, recently IRFC raised ₹4,532 crore through its tax-free bond issue. The government had allowed IRFC to raise ₹6,000 crore, of which the Railways’ fund raising arm had already mobilised ₹1,468 crore through private placement.

The offer “If IRFC’s issue has been oversubscribed just a week to 10 days ago, why did NHAI decide to pay more to raise money?” wondered an official.

In fact, NHAI is offering higher coupon rates than IRFC across retail and institutional segments. For retail subscribers, NHAI is offering a rate of 7.39 per cent for 10-year bonds and 7.6 per cent for 15-year bonds, while IRFC had offered 7.28 per cent for 10 years and 7.53 per cent for 15 years.

For institutional subscribers, NHAI is offering 7.14 per cent (for 10-year bonds) and 7.35 per cent for 15-year bonds, while IRFC is offering 7.07 per cent for 10 years and 7.32 per cent for 15-year bonds.

That said, a top NHAI official told BusinessLine that the decision to offer higher rates was taken keeping in mind multiple factors, one of which is to include retail investors in the Indian highways’ growth story.

When asked why it was agreeing to offer higher coupon rates, NHAI said, “NHAI’s proposed issue is for a big amount (₹10,000 crore) and the highest to be offered by any issuer in this financial year. In view of this, any reduction in coupon rate may have not fetched the desired amount from the market. The retail portion of ₹4,000 crore is almost equal to the full issue size of IRFC.”

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