NTPC to revisit overseas markets for funds

Proposed issuance will be the fourth offering under its $2-billion medium-term-note programme, launched in 2006

Barely a week after it raised $500 million through foreign currency bonds, NTPC is planning to revisit overseas markets for more funds. The country’s largest power producer may raise another $700 million between January and June 2013, say sources familiar with the development.

The proposed issuance will be NTPC’s fourth offering under its $2-billion medium-term-note (MTN) programme, launched in 2006. “We are going to raise money soon. We will continue to tap overseas markets,” said Arup Roy Choudhury, chairman and managing director, without elaborating on the details.

Higher domestic borrowing costs and the recent reduction in withholding tax rate on infrastructure companies’ external commercial borrowings (ECB) are encouraging firms to scout overseas markets for funds.
 

LOOKING ABROAD

• NTPC may raise $700 million between January and June 2013
• Higher domestic borrowing costs and reduction in withholding tax rate on infra companies’ ECBs encouraging firms to scout overseas markets for funds
• NTPC plans to use the funds in financing their capital expenditure
• Eighteen projects of NTPC with a total of 15,000 Mw capacity are under construction and the money will be used to finance these ventures 
• Some say a sharp decrease in domestic lending rates in coming months may persuade NTPC to delay its proposed overseas bond issue

NTPC became the first company to benefit from lower withholding tax when it raised funds last week through dollar-denominated senior unsecured 10-year bonds. The offer was subscribed eight times, which allowed the firm to price the bond at 305 basis points above the US Treasury (UST), cheaper than its initial guidance of 325 basis points above the UST.

The bond had a coupon at 4.75 per cent, the lowest coupon ever achieved by the company for its international bonds.

“The high withholding tax rate was making issuances very expensive; the reduction (in withholding tax rate) is a welcome change, although it has been restricted to only those having the status of infrastructure companies. The reduction in the effective rate of withholding tax from 26.7 per cent to 5.25 per cent will encourage a number of infrastructure companies to exploit fund raising opportunities overseas," said Syed Zafar, managing director for capital markets and treasury solutions at Deutsche Bank in India.

The foreign lender was one of the merchant bankers to NTPC’s bond issue in September 2012. "A number of public sector companies that have necessary investment grades have expressed interest to raise funds from the overseas markets, but we will also get to see high yield issuers out of India accessing the offshore bond market," said Zafar.

NTPC plans to use the funds in financing their capital expenditure. “During the 12th Five Year Plan period, our total capital expenditure plan is Rs 2.19 lakh crore. Out of this, Rs 1.5 lakh crore will be raised from the markets. Hence, we need to approach overseas investors to meet our funding requirements," said NTPC’s Choudhury.

According to a senior official at NTPC, currently 18 projects with 15,000 Mw capacity are under construction and the money will be used to finance these ventures.

However, sources said a sharp decrease in domestic lending rates in coming months may persuade NTPC to delay its proposed overseas bond issue by a few months. "It will depend on whether the Reserve Bank of India (RBI) decides to cut rate in October.

If (domestic) lending rates come down sharply, then the issue may happen in the second half of the next calendar year," said a source.