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Saturday, Dec 11, 2004

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Corporate - Corporate Bonds

Corporates gear up for bond market

Rukmani Vishwanath
Richa Sharma

Mumbai , Dec. 10

THE recent clampdown on the FII investment ceiling in corporate debt notwithstanding, the action in the corporate bonds market is far from over.

In fact, bankers are understood to be jittery about the spate of corporate bond issuances lined up over the next couple of weeks, as there are apprehensions that a sustained trend may once again impact the offtake of credit from banks.

Market players expect a fresh wave of issuances to the tune of Rs 3000 cr-Rs 4000 cr to hit the market in the next fortnight.

``A lot of public sector undertakings are likely to tap the market for funds in another 15-20 days. These PSUs are expected to set the market rolling. With bond yields looking to stabilise, this may be the best time for other corporates to jump into the fray if they want to raise funds at attractive rates, as sub-PLR rates of banks have inched up", said a dealer in corporate bonds, with a private sector bank.

For example, a triple A-rated corporate can still raise five year bonds at around 7 per cent in the current market, whereas banks will most likely charge upwards of 8 per cent in the present scenario, said a dealer. Power Finance Corporation's issuance of Rs 100 crore which opened on Friday, with an unlimited green-shoe option, received bids worth Rs 1,020 crore, at the rate of 7 per cent. Dealers said, that although the issue was expected to be open for 10 days, it was likely to be closed on the same day that it opened.

Most banks would not be able to match the market rates, as their own cost of funds have gone up after a recent round of hikes in deposit rates.

Recently, IDFC and HDFC raised Rs 1,000 crore each through bond issuances, and are looking to raise Rs 250 crore, and Rs 200 crore respectively next week through the issuance of five year bonds. They are expecting to raise the funds at rates of 6.90 per cent and 6.95 per cent respectively. Other players waiting to raise funds shortly are IDBI and Power Grid Corporation who are looking to issue long tenor bonds of over five years at attractive rates.

Around Rs 500 cr-Rs 1000 cr of issuances are expected in the non-triple A-rated corporates alone, analysts said. ``AA+ rated corporates may be able to raise five year bonds at 7.10 per cent to 7.15 per cent, while AA-rated corporates may be able to raise funds at 7.30 per cent to 7.40 per cent. These are definitely better rates than will be available to them from banks,'' said an analyst

Debt market dealers ascribe the revival in trading activity in the corporate bond market to the shift in market perception over interest rates based on a global easing of crude oil prices, coupled with a lower inflation rate.

In fact, the yield on the 7.38 per cent 2015 paper in the Government securities market on Friday softened to 6.61 per cent after peaking at over 7.32 per cent levels in November 5.

The recent unwinding of liquidity in the debt market has also added to comfort levels.

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