State-owned power company NTPC’s public issue of tax-free bonds saw strong demand on the opening day, with the issue getting fully subscribed. By the close of trade, the company had received subscriptions worth R2,862 crore, far higher than the planned issue size of R1,750 crore.
This is the first tax-free bond issue from NTPC after a gap of over 20 years.
Bankers say the issue saw heavy demand from high net- worth individuals. “The coupon rate offered by the company is quite good. Equities are not offering good returns and there are not many IPOs coming out in the market; hence, people are investing in tax-free bonds,” said Akshata Tambe, senior manager at AK Capital services, which served as one of the lead managers for the issue. Tambe added that the company is still to take a decision on whether to conclude the issue before the scheduled close of December 16.
NTPC’s bonds offered a coupon rate of 8.41% for 10 years, 8.48% for 15 years and 8.66% for 15 years for corporates, qualified institutional buyers and high net-worth individuals. Retail investors were offered an additional 25 basis points on all tenures. The quota for retail investors was set at 40% of the issue size.
The government has allowed 13 public sector institutions to raise R48,000 crore through tax-free bonds in 2013-14 to meet their investment needs and had allowed 30% of this to be raised through private placement. So far, companies have managed to raise about R16,700 crore via tax-free bonds.
The response to tax-free bonds this fiscal has been better than the tepid demand seen last year as interest rates being offered are higher. This is partly due to the increase in government bond yields, which have risen sharply during the course of the year. The 10-year benchmark yield closed at 8.77%.
Meanwhile, Housing and Urban Development Corporation (HUDCO) also went to the market with its second tranche of tax-free bonds on Monday, looking to raise R2,440 crore. HUDCO had mopped up close to R700 crore by close of trade on Tuesday.
“R700 crore in the first two days of the issue is not bad. Everyone was focussed on the NTPC issue and now HUDCO’s tax-free bond issue will see better demand as it offers a higher coupon rate. It offers the highest coupon rate above 9% and it has preference for retail investors. So you should see demand coming in from corporates, high net-worth individuals and retail customers equally,” said Ajay Manglunia, senior vice-president at Edelweiss Capital.
HUDCO’s bonds offer a coupon rate of 8.51% for 10 years, 8.58% for 15 years and 8.76% for 15 years for corporates, high net-worth individuals and qualified institutional buyers, with retail investors getting an additional 25 basis points. The issue closes on January 10. HUDCO, in its earlier issue of tax-free bonds this year, had planned to raise R4,809 crore. It had raised R2,405 crore by the time the issue closed on October 14.