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Informist, Wednesday, Jan. 29, 2025

 

By Sachi Pandey 

 

MUMBAI – National Highways Infra Trust Ltd., an infrastructure investment trust backed by the National Highways Authority of India, failed to find enough takers for its offering of 17-year bonds for the second time in eight weeks. While the company managed to raise INR 20.32 billion through zero-coupon bonds maturing in 2035, its attempt to issue a 17-year bond failed yet again due to lack of demand from long-term investors.

 

The NHAI-backed InvIT had to scrap the issuance just a month after a similar setback in December, when it had to withdraw its 17-year bond issue due to weak demand. After its unsuccessful attempt in December, the company modified its approach by adding zero-coupon bonds to its fundraising mix. However, the response for even these papers remained lukewarm, reinforcing doubts about market appetite for InvIT's long-term papers. 

 

"The demand this time was worse than in December," said a source at a large private-sector bank. "Most of the insurance companies and pension funds were not keen. The few who bid at higher levels were just trying their luck--if they got it, fine, but if not, they didn't mind either. Even in the 9-10 year bond, NHIT (National Highways Infra Trust) should have received 7.70%, but they had to settle for higher levels."

 

The company targeted a total borrowing of INR 25 billion from the twin bonds, and it managed to raise 81% of this target. The 2035 zero-coupon bond was priced at a yield of 7.75% and getting almost the full amount, indicating moderate investor interest in medium-term maturities.

 

But the 17-year bond maturing in 2042, which was expected to make up for the shortfall, attracted only four bids, all at the lower end of the pricing board. Despite National Highways Infra Trust's 'AAA' rating from CARE Ratings, the poor response forced the company to scrap the issuance entirely. 

 

A source closely involved in the transaction told Informist on the condition of anonymity, "They had to raise (INR) 2500 cr (INR 25 billion) which they nearly did. They wanted to raise funds through 2042 bonds as well but the levels were very high, and they were not comfortable with the yield, so they preferred to scrap it instead of raising any funds through those papers." 

 

Market participants pointed to several reasons behind the failure. One key factor was the company's relatively recent entry into the market. Established in 2020, National Highways Infra Trust lacks the trust and the track record of fully government-owned entities like REC and PFC, which are perceived as safer investments. Investors tend to favour issuers with a long-standing reputation, and National Highways Infra Trust, despite NHAI's backing and an 'AAA' rating, does not yet enjoy the same level of confidence.

 

"People are happy to put money in 20-30 year PSU papers, thinking, 'It's a PSU, it'll be fine.' But a 17-year private bond, especially from an InvIT, is an illiquid tenor," said a senior official at a large brokerage firm.

 

Another factor is its status as an infrastructure investment trust. InvITs hold depreciating assets and do not generate capital appreciation over time, making them less attractive to long-term investors, market experts said.

 

Liquidity concerns also played a role. Institutional investors prefer bonds that can be easily traded in the secondary market. Long-duration papers from a newer issuer like National Highways Infra Trust are harder to sell, reducing their appeal even if they offer higher yields. Another reason for the lack of demand at the company's bond sale was large institutional buyers such as large provident funds and big-ticket insurers gave it a miss.

 

With several factors in play, the company now faces the critical question of whether it has misread investor behaviour or fundamentally miscalculated the demand for long-term bonds. Perhaps the company may need to revisit its borrowing strategy until investors warm up to its papers.  End

 

Edited by Akul Nishant Akhoury

 

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