National Highways Authority of India (NHAI) will launch its first ever tax free bond issue of Rs. 10,000 crore. The issue shall remain open from December 28, 2011 with an option to close earlier or extend up to a maximum period of 30 days. However, the issue shall remain open for a minimum period of three days. This issue is likely to be closed on 30th December, 2011 itself due to the expected high demand. A tax free bond like this is hitting the market after a long time.
The issue will be of Rs. 5000 crores with a green shoe option to retain additional Rs. 5000 crores. The coupon rates will be 8.2% for 10 years and 8.3 % for 15 years. To benefit retail investors, 30% of the Bonds issue has been reserved for them. NHAI intends to deploy the Issue proceeds towards financing of the various projects being implemented by it under the NHDP and other NH projects as approved by Government of India.
An 8% tax-free coupon rate is very much comparable to an investment product that delivers 12% pre-tax returns. This issuance is even better than bank fixed deposits, which are currently giving about 9% (pretax) returns. Also, with interest rates expected to come down over the next few months, money managers are hoping to generate higher returns by selling these bonds at a relatively higher coupon rate. In the event of a fall in interest rates, wealth managers expect 5-10% price appreciation on premature encashment of the bond.
NHAI has been authorized by the CBDT notification to raise funds upto 10,000 Crore through public issue of Tax Free Secured Redeemable Non Convertible Bonds of face value of Rs. 1,000 each in the nature of Debentures having tax benefits under the Section 10(15)(iv)(h) of the Income Tax Act, 1961,
PLEASE NOTE THAT, THE INEREST EANRED ON THIS BOND IS FULLY EXEMPTED FROM TAX AND NOT THE ACTUAL INVESTMENT, MOREOVER THE INVESTORS WILL BE LIABLE TO PAY CAPITAL GAIN TAX AS PER THE APPLICABLE RATE AT THE TIME OF MATURITY.
This bond is suitable for those who are liable to pay income tax. Non-tax payers can still deposit in bank term deposits and earn 9-10% annual interest. If you decided to subscribe for this bond, hurry ... and ensure to submit your application in the first day itself, otherwise you may miss the opportunity.
For more details contact NHAI or the lead managers
Best Regards
Prakash Nair
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