Attractive interest rates jazzes up Andhra Pradesh’s Amaravati Bond

Publish date: 28th August, 2018

The Andhra Pradesh government issued bonds worth Rs 2,000 crore in a bid to build its capital city Amaravati.

The ‘Amaravati Bond 2018’ was listed in the Bombay Stock Exchange (BSE) by the Andhra government’s Capital Region Development Authority (CRDA) on Monday (August 27, 2018).

The bonds were originally issued for Rs 1,300 crore but due to high demand — oversubscription of 1.53 times — the CRDA managed to raise Rs 2,000 crore.

The money will be used to build infrastructure for Amaravati, which will be the capital city for Andhra Pradesh from 2024.

The high demand among institutional investors like commercial banks, fund houses and insurance companies has buoyed the CRDA.

They are now planning to reach out to retail investors — people who invest less than Rs 2 lakh — and raise Rs 10,000 crore through them. Their main focus will be to tap into the Telugu NRI diaspora in their endeavor to build the greenfield capital city.

Strong bond

The freshly-floated bonds was a catnip for institutional buyers, mainly due its attractive interest rates.

The 10-year bond has been offered at an interest rate of 10.32% every quarter, with a five-year freeze in withdrawing the principal payment. The principal amount can then be redeemed at 20% from the sixth year.

Andhra Pradesh chief minister Chandrababu Naidu, who rang the opening bell at the BSE, said he would use the capital to develop Amaravati into one of the best cities in the world.

Nadu told reporters that the state would have a trillion dollars by 2029 due to high investments made in the capital city. The state’s economy is currently valued at $124 billion.

The capital raised through the ‘Amaravati Bond 2018’ will help finance the greenfield city’s infrastructure projects. Right now, projects worth Rs 27,000 crore are underway, while another Rs 11,000-worth of projects remain in the pipeline.

Interest-ing doubts

The opposition has raised concerns over the interest rate. YSR Congress MLA Rajendranath Reddy said there is confusion over the interest rate. He said that while the government said the interest rate would be 10.5%, the CRDA announced it would 10.32%

The other concern is that if the interest rate is to be paid at 10.32% every three months, its annual rate would be around 10.75%, which is deemed to be on the higher side by the opposition and the central government.

In contrast, the Greater Hyderabad Municipal Corporation and the Pune Municipality recently issued bonds at 8.9% and 7.59% respectively, according to The News Minute report.

Another bone of contention pointed out by the Planning Board chairman C Kuthumba Rao is that the Andhra Pradesh government was paying a high commission to the merchant bank in-charge of the entire process.

A 0.85% plus GST means the government would have to fork out Rs 17 crore for the Rs 2,000 crore bond issue. The number would get higher if the government takes the bond issue to the general public.

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