NTPC's tax-free issue flies off the shelf on Day One

Issue sees demand worth Rs 4,400 cr for Rs 700 cr on offer

The Rs 700-crore tax-free bond issue of NTPC was subscribed 11 times as investors rushed to capture the attractive yield on offer. The tax-free public issue, the first since FY15, saw demand of Rs 4,400 crore across four investor categories.

“There was a huge rush as investors felt the forthcoming tax-free bonds would have lower coupon rate if the central bank cuts rates at its next policy meeting on Tuesday,” said Ajay Manglunia, head (fixed income) at Edelweiss Capital.

The NTPC issue will close on Thursday. However, bankers handling the issue said the issue has already closed technically and those investing on Thursday won’t get allotment, which is being done on a first-come-first-served basis.

For those investors who applied on Wednesday, allotment will be made on a proportionate basis. For instance: A high net worth individual (HNI), or wealthy person, applying for Rs 20 lakh will get allotment for only Rs 2 lakh as the HNI quota has been subscribed nearly 10 times.

The retail investor segment — those investing less than Rs 10 lakh — was subscribed 11.6 times; the institutional segment and the corporate segment were subscribed 5.3 times and 14.2 times, respectively, stock exchange data showed.



NTPC offers coupon rates of 7.11 per cent, 7.28 per cent, and 7.37 per cent for bonds with maturity of 10 years, 15 years, and 20 years, respectively. Retail investors are offered 25 basis points extra.

The 20-year paper witnessed the highest demand, bankers handling the issue said.

The government has allowed seven infrastructure companies to raise up to Rs 40,000 crore by an issue of tax-free bonds in the current financial year. Last year, there were no tax-free bond issuances. A tax-free bond issue is efficient for taxpayers as the interest earned on these bonds is not taxed unlike a bank fixed deposit.

Power Finance Corporation is expected to launch its tax-free issue of Rs 700 crore on October 5. The coupon rate on a tax-free bond has to be 80 basis points less than a similar-tenure government security (average opening and closing price for two weeks).

So, if yields on government paper soften, tax-free bond yields also go down. The 10-year government security closed at 7.71 per cent on Wednesday.

A rate cut by RBI could send yields on the government security lower. The central bank’s next monetary policy review is scheduled for September 29, where it is widely expected to cut interest rates by 25 basis points.