 "Bonds")
To augment infrastructure funding, the finance ministry has written to other ministries asking them to tap the provisions made during Budget to raise funds worth Rs 31,300 crore through bonds.
These bonds will have to be raised this financial year, of which only two months are left. Some bonds have been issued but the response has been lukewarm. The issuances might not put pressure on the markets as the issuances will be privately placed.
The provisions to raise these bonds were made in Budget 2016-17, but the amount was not added to the total borrowing. Rather, these were earmarked as extra-budgetary receipts.
In the Budget, the government had allowed mobilisation of additional finances through bonds of Rs 31,300 crore. The entities allowed to do this were the National Highways Authority of India (NHAI), Power Finance Corp (PFC), Rural Electrification Corp (REC), Indian Renewable Energy Development Agency Ltd (IREDA), National Bank for Agriculture and Rural Development (NABARD), and the Inland Water Authority.
According to bond dealers, Nabard has raised Rs 500 crore worth of bonds and PFC has raised about Rs 1,300 crore. But overall the demand has not been very good, considering many AAA rated papers are already available in the market, some issued by the same companies who regularly tap the market.
The privately placed bonds would be issued through the electronic platform of the capital market regulator, the Securities and Exchange Board of India (SEBI), the finance ministry clarified recently in a notification to the ministries concerned. According to bond dealers, Nabard raised Rs 500 crore worth of bonds and PFC about Rs 1,300 crore. But the demand has not been up to the mark, considering many AAA-rated papers were already available in the market.
The finance ministry clarified the bonds can at the most have a coupon rate of 10-20 basis points above the corresponding maturity of government securities. This coupon should be strived for by the issuers, and “need not be announced to investors during placement to avoid any bias price manipulations,” the finance ministry had clarified to the ministries of power, shipping and renewable energy. “Efforts should be made by the agencies concerned to minimise the spread over corresponding G-Sec rates to the extent possible.” However, “the actual coupon rate may be as per prevailing market condition.”
The tenure of the bonds could go up to 15 years only when the cost of borrowing was lower than the tenure of 10 years and the money should be raised “expeditiously”.
The yields on the 10-year bond is now around 6.50 per cent, while that of the 15-year bond is around 6.95 per cent.
Following the clarification, the companies have started preparation for issuing bonds.
The Inland Waterways Authority of India (IWAI) might come out with its first bond issue in February to raise Rs 1,000 crore to fund its plans for 106 waterways. The first tranche of Rs 500 crore is expected to be raised in February and the second tranche for a similar amount might come up in March, said a senior government official.
The IWAI wants to develop 106 waterway projects to allow cheaper movement of goods and passengers.
Bond dealers said the issuances won’t impact the prevailing bond yields much. As the bonds would be privately placed, the buyers would most likely be large institutions that are not typically active in the secondary markets, bond dealers said. In any case, the government has reduced the borrowing plan by Rs 18,000 crore for the rest of the year, creating space for the absorption of the new bonds.
