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Tough choice for bond issuers

Rukmani Vishwanath
Richa Sharma

Mumbai , June 30

A NUMBER of banks and PSUs who are gearing up to raise capital in the domestic debt market seem to be caught between a rock and a hard place.

While on one hand, there are those who feel that they have to move quickly to raise capital to meet their Tier-II requirements before interest rates begin to harden, on the other, there are those who have slipped into the `wait and watch' mode in order to see how the market reacts post-Budget before they enter with an offering.

Analysts are of the view that the flipside in both cases may not necessarily spell good news for bond issuers. In the first scenario, where the bond issuers want to lock into the existing levels of interest rates, investors may not exactly queue up to subscribe to the issues, in the hope that the rates will firm up in the near future, and they can get better returns. In the second scenario, those coming up with an issue post-Budget, in all likelihood will find it a far more expensive proposition as interest rates are poised to harden anytime now.

The yield on the 10-year benchmark security was at 5.30 per cent in the beginning of this month. Apprehensions of a rise in domestic interest rates keeping in line with global trends drove it up to a high of 5.91 per cent on June 25. The paper is now trading at 5.86 per cent levels.

Even corporates who are tapping the debt market in the current scenario are coming in with floating rate options, as fixed rate loans would have few takers, an analyst said.

However, most agree, that in cases where the banks or corporates have guaranteed subscribers, the issue will not have much trouble going through.

In the fray with hope

UTI Bank raised Rs 150 crore through six-year bonds in the first week of June, the rate of which was 85 basis points over a one year G-sec, floating and subject to revision every six months.

National Housing Bank announced that it would raise Rs 500 crore through a five-year floating rate bond, with a coupon at 60 basis points above the one-year G-Sec.

Indian Bank decided to tap the market with a Rs 300-crore bond issue, including a green shoe option of Rs 100 crore. This was to be raised in two tranches, for a tenor of 84 months with a coupon of 6.15 per cent and a 120-month tenor, at the rate of 6.25 per cent.

HDFC LTD has announced a Rs 500-crore bond issue programme which has been assigned a triple A rating by Crisil.

IndusInd Bank has raised a Rs 100-crore issue, which is inclusive of a green-shoe option of Rs 50 crore. The issue, which closed on June 29, was in two tranches. The tenor of the bonds will be of five years at the rate of 6.80 per cent and 10 years at the rate of 7 per cent.

Dena Bank is also proposing a post-Budget tier-II issue. The bank is expected to raise anywhere between Rs 100 crore and Rs 250 crore.

Global Trust Bank is also expected to enter the market with a tier-II issue in the next couple of weeks , the details of which were not available presently.

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