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LIC buys first issuance of longest maturity bonds

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Life Insurance Corporation has bought the first issuance of the longest maturity 30-year bonds this financial year, sold by the National Highway Authority of India (NHAI).

Indias biggest domestic institutional investor bought Rs 2,000-crore worth of the bonds in an online primary transaction. NHAI offered 8.55% coupon on the bonds for the first 10 years while the rate would be reset after every decade based on existing benchmark yields then, dealers said.

Both NHAI and LIC could not be contacted immediately.

NHAI, which has been working actively on new road building, needs long-term money to meet its targets.

NHAI will need to raise about Rs 1.3 lakh crore by 2020 on the back of increasing cost of land acquisition due to faster construction, according to a report by Kotak Institutional Securities.

“Increase in construction activity thus would possibly drive cost of land acquisition to new highs,” the report said.

The latest bond sale has helped lift sentiment in the corporate bond market, which is projected as a viable channel for long-term financing.

In April and May, corporate bond sales (via private placement) fell 63 per cent to Rs 32,704 crore, show data from Prime Database.

The corporate bond market, projected as the primary funding source for Indias infrastructure needs, has been in a spot because of escalating borrowing costs and dwindling volumes. Some operational difficulties arising out of new norms applicable for exchange bidding platforms are blamed for the lower volumes. Both investors and borrowers have voiced their concerns.

The countrys biggest pension fund has approached the Securities Exchange Board of India over the matter, while another largest domestic institutional debt investor is said to have approached the finance ministry.

Top-rated borrowers including Nabard, Power Grid, IRFC, and Rural Electrification Corp are working jointly to overcome the procedural hurdles.

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