NHAI introduces tax free bonds to raise capital

Posted on Friday, August 6, 2010

The National Highway Authority of India has decided to float tax-free bonds to raise capital. The NHAI has received somewhat of a lacklustre response to its previous efforts in raising money through bonds. The association is pushing for tax-free bonds nonetheless. According to its estimates this new venture will raise Rs.6000 Cr. in capital.

The bonds will give a rate of interest of 8.5 per cent, significantly higher than its current 54EC tax free bonds that offer just 6 per cent. By introducing such incentives the NHAI believes that the response to this offer will be good and the necessary money will be raised.

Well, one can venture a guess as to the their motivation to introduce such a scheme. The Government has set itself an ambitious target of building 20 km of highway roads per day. The NHAI is the authority that has the responsibility to manage this target and see to it that the projects come to fruition. the time is running out for the the Government’s promise and concrete steps have to be taken. Hence the NHAI has proposed to float these bonds to raise the capital involved to meet this target.

Here is a look into NHAI’s previous efforts to raise money.NHAI raised Rs 500 cr. between April and June this fiscal through bonds. Last fiscal it raised Rs 1148 cr. through bonds and for this fiscal the authority hopes to raise Rs 2000 cr. from 54EC bonds. NHAI needs Rs 33,000 cr. for the execution of its targeted 12,000 km by 2013.

The NHAI is looking considerably upbeat about its new schemes, but financial experts beg to differ. According to them, the scheme should have a higher rate of return than what has been proposed. This is when people will be excited about the bonds and there may be a decent response.

Source: Financial figures have been used from NDTV Profits website.

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