The infrastructure bond market is in for some big action. The Central Board of Direct Taxes (CBDT) has allowed state-run generation utility NTPC to issue tax-free bonds aggregating Rs 1,750 crore in the remaining part of the current fiscal.
This would be the first of the Rs 50,000 crore tax-free infrastructure bonds that the government had said in the Budget it would issue this fiscal. ToI had on July 11 first reported NTPC seeking permission for floating bonds worth Rs 2,500 crore.
The bonds would be issued with tenures of 10, 15 or 20 years. NTPC had sought the long gestation period in view of the long time it takes to build power projects, which would be funded through the proceeds. Interest income on the bonds would be tax-free throughout their tenure. Retail investors, including resident/non-resident individuals and Hindu Undivided Families, would be paid 0.25% higher interest than other categories of subscribers.
But retail investors would be eligible to apply for a maximum of Rs 10 lakh worth of bonds.
NTPC expects to incur a capital expenditure of Rs 20,200 crore in 2013-14 on various heads. The utility expects to fund Rs 7,959 crore of this from internal resources and raise debt of Rs 12,241 crore. The bonds would form part of the debt component.
NTPC has a target of adding 14,038 mw to its total capacity by the end of 2016-17. It has completed projects to add some 4,170 mw generation capacity in 2012-13. With this, the company's total capacity stands at 41,184 mw. This is set to rise to 50,000 mw by the end of the 12th Plan.
NTPC has been issuing bonds since 1985-86 to fund its capital expenditure and has an impeccable track record of servicing the papers. Major credit ratings agencies had assigned AAA rating to its papers. The company plans to price the bonds attractively to ensure its success, sources said but declined to give details. The bonds will carry SLR (statutory liquidity ratio) tag. This will give the papers stature of a government instrument. SLR tags make bonds attractive for banks to subscribe as their investment is treated as liquid under their requirement of keeping a particular sum in cash, gold or government securities.
Often, banks prefer investing in some or the other interest-yielding security rather than keeping cash. If banks can invest in a bond and still that investment is treated as liquid for meeting the SLR ratio, then the bank would invest in such a bond rather than keeping money lying idle.
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