The Hindu Business Line : Top-rated PSU bonds lapped up in a trice

Banking sources said that the rush allowed most of the issuers to price their potential at rock bottom yields. An issue by GAIL for Rs 500 crore was lapped up barely minutes after offer at a coupon of 5.85 per cent.

This is by far the lowest coupon for a non-sovereign ten-year issue. The issue does not have any call or put options. This kind of aggressive pricing, bankers said, at barely 60 basis points over the sovereign ten-year bonds, is on account of the liquidity in the banking system.

The excess liquidity was evident from the high repurchase operations carried out by the RBI. These one-day repos have continuously mopped up anywhere between Rs 45,000 crore and Rs 50,000 crore, since the beginning of this week.

Part of the excess liquidity was on account of external flows both on the current account and the non-debt capital account. The non-debt capital account flows included conversion of some of the FCNR deposits by non-resident Indians into non-repatriable rupee deposits, bankers said. Besides, the two redemptions also contributed to the increase in liquidity.

GAIL, however, was not the only beneficiary from such low coupons and the enormous investor appetite for such bonds. Issuers such as the Power Finance Corporation, Indian Railway Finance Corporation, PowerGrid Corporation, Konkan Railway Corporation Limited, Exim bank and Power Finance Corporation also found their respective issues oversubscribed in barely 12 hours after inviting the offers, despite the low pricing.

All these issuers had priced their respective private placement at rates close to that of GAIL. The amounts raised varied from Rs 250 crore to Rs 500 crore.

Along with these issues, some banks also synchronised their borrowings under their Tier two capital. These borrowings were up upwards of Rs 100 crore, the bankers said. These borrowings were also at rates of under 6 per cent.

But bankers said that liquidity was not the only reason for the overwhelming interest in the PSU bonds. Most of these issues are now listed on the National Stock Exchange to conform to the new guidelines of the Securities Exchange Board of India and the RBI.

These guidelines have barred investments in private placements.

Issuers, on the other hand, are expected to have their respective private placements listed in the NSE.

As a result, liquidity of the issues is expected to be high.

Moreover, bankers said they expected yields to soften further from the beginning of the next financial year. They said that this trend was already evident from the behaviour of the bond markets, where ten-year yields have dropped to about 5.1 per cent.

Consequently, the banks, even at the current low coupon rates, would be in a position to make profits.

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