What’s so interesting about Delhi-Mumbai Exp bonds?

The DME Development (DMEDL or Delhi-Mumbai Expressway Project) is a unit of the National Highways Authority of India (NHAI), which sold the floating-rate securities to part-finance the project linking India’s biggest economic hubs.

Aditya Birla MF, Axis MF, Morgan Stanley, ICICI Bank and AK Capital are said to have subscribed to these bonds that offer 6.85% for now every quarter, on a par with the sovereign benchmark bonds, market sources told ET. Individual investors could not be contacted immediately.

There could be multiple bids from a single entity as investors across the board were keen to own such attractive papers, dealers said. Initially, the spread was not reportedly fixed but the borrower later decided to offer a fixed spread over a shorter duration sovereign gauge.

Those are floating rate bonds, which will offer rates after adding a mark-up or spread over a three-month Treasury Bill, which was calculated at 3.74 percent at the time of launching the issue a week ago. The spread is fixed at 311 basis points for the whole tenor of the bond pegged at 15 years. This makes the annual interest rate initially at 6.85% payable at the end of each quater. Every three months, the rate will be reset with changing T-Bill yields.

One basis point is 0.01%.

“The interest rate is quite attractive in the current market scenario, which triggered a mad rush among investors,” said Venkatakrishnan Srinivasan, founder at Rockfort Fincap, a Mumbai-based boutique firm engaged in the debt capital market. “Given a fixed spread, an investor surely will earn a higher rate at every reset with rising Treasury Bill yields.”

“It is expected to trade at a premium in the secondary market,” he said.

Some participants are said to have already inked secondary market deals at a premium of as much as 3.5 percent. Such deals may be reported later this week or early next week, sources said.

CARE Ratings have rated the company triple-AAA (Stable).

The rating continues to derive comfort from the legal framework afforded to DMEDL by way of the Concession Agreement (CA) and the Implementation Agreement (IA) executed between NHAI and DMED, the rating company said in a note.

NHAI would make annuity payments to DMEDL, the periodicity and quantum of which will be aligned with the debt servicing schedule of the debt as agreed with the lenders, under the financing agreements, along with other incidental expenses of DMEDL.

NHAI undertakes to support the project by way of a Letter of Comfort (LoC) to the lenders for raising funding for the project.