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NHAI bonds on road to bumper listing

Grey market premium soars listing likely early next week

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Optimism is building ahead of the listing of National Highways Authority of India's (NHAI) Rs 10,000-crore bond issue. Market players are expecting a repeat of the bumper profits seen last year when State Bank of India (SBI) bonds were listed.

High net worth individuals (HNIs) who’d failed to get their desired quantity of bonds due to the huge over-subscription are still trying off-market deals. The HNI saw demand worth Rs 8,120 crore against Rs 3,000 crore of bonds on sale. The institutional category saw demand for Rs 24,533 crore against Rs 4,000 crore for sale.

The premium for bonds, Rs 5 when the issue closed for subscription on January 6, has now jumped to Rs 22. This means punters expect the bond to list at least Rs 22 above its face value of Rs 1,000, with considerable volumes in the market.

Similarly, the grey market premium for the Rs 5,000-crore Corporation (PFC) bond has also rallied from Rs 5 to Rs 17- 18, dealers from broking firms here said. The NHAI listing will be followed with PFC’s in mid-February. Both had closed well before the last subscription date, due to heavy over-subscription.  

"The markets are excited about NHAI bonds, expected to list next Monday or Tuesday. It should be a repeat of the bond listing. Also, bond holders are likely to get more money, as the cut-off date of interest payment, March 31, is near. do not want to let go of this opportunity," said a broker.  

The premium being offered in the grey market for SBI bonds then was Rs 320 per bond with a face value of Rs 10,000. The SBI Bond ‘N’ series was listed at a premium of Rs 365 on the National Stock Exchange against the face value of Rs 10,000. During the day, the counter also touched a high of Rs 10,385 before it closed at Rs 10,250.

Investors made around Rs 20,000 on each of those bonds, including the interest paid on the cut-off date, as the issue was listed in mid-March. Stock brokers had paid up to Rs 16,000 to retail investors per application of Rs 5,00,000 to apply on their behalf.

The premiums for NHAI and PFC bonds have seen an up-move due to the Reserve Bank of India’s recent decision to cut banks’ Cash Reserve Ratio, and the low coupon rates of the IRFC and Hudco bond issues. The cut CRR by 50 basis points, which has markets anticipating that even key interest rates may be cut in 2012. Interest rates and bond prices move in the opposite direction, so when the former falls, the latter will rise.

The returns or yields from both IRFC and Hudco bonds would be around 10 per cent. In fact, there is a step-down clause in the IRFC bonds, to result in less return if purchased through the open market.

For an individual in the highest tax bracket of 30.9 per cent, the 10-year 8.2 per cent tax-free NHAI bond gives an effective return of 11.87 per cent.

The 15-year 8.3 per cent bond gives 12.01 per cent. These are way better than bank fixed deposits that are taxed, even if they offer as much as 9.5 per cent or 10 per cent.

Similarly, the PFC bond, with a coupon of 8.3 per cent and 8.4 per cent for maturity periods of 10 and 15 years, respectively, would yield more than 10 per cent. Sovereign backing to the NHAI bonds, meaning guaranteed return even if the entity suffers losses, adds to the attraction for HNIs.

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