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FE Investor Bureau
Flexibonds IV offers yet another opportunity
The bond fatigue could very well be catching up with many investors. On Monday, IDBI's Flexibond-4 will open for subscription, close on the heels of the ICICI safety bond issue. But if you are an investor looking for fixed income, Flexibond-4 could be another opportunity, especially for those who had missed the ICICI issue.
There's hardly any difference between the two issues in terms of interest rates offered, except for the structure and the nature of products. It's a question of when and how much money do you need. The choice of the product then becomes very clearly.
The usual question faced by investors is: should I invest now or wait for either of the institutions to tap the market again? Both ICICI and IDBI are likely to float more bond issues later. The answer lies in your expectation of whether interest rates will go up.
The chances of a sharp rise in medium and long-term interest rates look bleak. There is plenty of money in the economy(around Rs 17,000 crore in the form of Resurgent India Bond proceeds). Only if this is sucked up, will there be a pressure on interest rates to go up. Even if they do rise, it may not make much of a difference for investors in such institutional bonds.Consider this: Between the last Flexibond floated in January and the one opening next week the difference in interest rate is 0.5 per cent to one per cent.
This time around, IDBI has changed the mix of products. It has dropped the infrastructure bond and instead included education bond. It does not intend to tap investors who want to save taxes. Instead, it is targeting the household, who wants to meet their children's education expenses over a period of time. Thus if you invest Rs 5,000 now, after five years you will get Rs 2,450 every year for another five years. This will include Rs 1,000 towards principal and Rs 1,450 towards interest.
The growing income bond may be of interest for investors who generally put in their money in bank fixed deposits. Foryour loyalty, IDBI is offering increased rates every year, going upto a maximum of 20 per cent in the seventh year. Here, you have the option of encashing the bond at the end of every year.
IDBI deep discount bond is the usual product on offer. For a minimum investment of Rs 10,000 you will get back Rs one lakh after 17 years and six months.
The regular income bond offers an interest rate of 14 per cent per annum, with a maturity of seven years.
UTI Bank's public offer at premium to book value
UTI Bank is offering 1.5 crore shares at a premium of 51 per cent to the book value. Unlike several other private as well as public sector banks, who have offered shares at discount to their book values, UTI Bank has priced the shares at Rs 21 against the bookvalue of around Rs 13. Even the prevailing poor market conditions, high level of NPAs and very few branches have not deterred the bank to charge a high premium. Other private sector banks like City Union Bank and Jammu and Kashmir Bank, who hadoffered shares at a discount to the bookvalue, have made debut at a steep discount to their offer prices. Some of the public sector banks like SBBJ, SBT and Dena Bank are yet to provide any capital appreciation. Considering all this, an investor should think twice before investing in a bank UTI Bank who is piggybacking on the parent.
The bank plans to rely on the mutual fund behemoth's 90,000-strong agent network to market its issue to retail investors. Apart from the bank's deposit base, it plans to tap UTI's investor base.
A series of meetings have been planned with UTI's agents to hard-sell the issue to their clients. Even some of the merchant bankers are also of option that it is important to tap the UTI's net work in view of UTI Bank's not-so-strong financials. UTI Bank has a poor earning per share, low book value and high net non-performing assets. The bank had an EPS of Rs 1.53 as on March 31, 1998, which could get further diluted mainly due to the increase in equity capital post-issue. The netNPA-level at 5.63 per cent (or Rs 90 crore) as on March 31, 1998, which is high by the industry standards.
Besides Rs 31-crore public issue, UTI is also making an offer for sale of around 2 crore shares at a price of Rs 21. Of the public issue, UTI Bank has reserved 2.2 lakh shares for preferential allotment to its employees at Rs 21. After the reservation for employees, net offer to public is 3.47 crore shares. Post-issue, UTI's stake will come down to 25 per cent. The bank's capital adequacy ration is around 9.72 per cent which will improve after the public issue. Lead managed by DSP Merril Lynch, the issue opens on September 21, 1998 and closes on September 28.
SIB banking on NRIs
The South Indian Bank is offering the shares at Rs 32. Although SIB's offer price is 63.77 per cent of the book value of Rs 50.18 as on March 31, 1998 (76 per cent of the post-issue book value of Rs 42.06), SIB is mainly concentrated in Kerala which is not industrially developed. Apart from its heavy regionalconcentration, SIB has a net NPA of 6.16 per cent. The fiscal 1998-earnings discount the offer price of Rs 32 by a multiple of 3.05 which seems to be a bit low. However, the projected EPS of Rs 7.64 discounts the offer price by a higher multiple of 4.18.
Of SIB's 354 branches, as many as 215 are located in Kerala and another state with major presence is Tamil Nadu (89 branches). On the face of it, SIB's performance for fiscal 1998 has been impressive. The bank managed to post a 166 per cent growth in net profit to Rs 20.74 crore compared with Rs 7.77 crore in fiscal 1997. The 166 per cent growth in PAT is against just 20 per cent growth in total income. Moreover, profit before provisions and contingencies rose by 36.7 per cent to Rs 29.9 crore. Despite high level of net NPAs, SIB's provisions and contingencies fell by 35 per cent to Rs 9.16 crore. A write back of depreciation on investments to the tune of Rs 10.14 crore against Rs 3.17 crore from fiscal 1997 saved the day for the bank. Provision for NPAssaw a marginal rise from Rs 7.81 crore in fiscal 1997 to Rs 8.67 crore during fiscal 1998.
Financial institutions hold 22 per cent and public and others have a stake of 77.98 per cent in SIB. Besides listing on the stock exchanges at Kochi, Mumbai and NSE, SIB is coming out with the public issue in order to meet future capital adequacy requirements and augment long-term resources. The bank has a capital adequacy ratio of 9.4 per cent.
SIB is cashing in on the goodwill it enjoys among the Gulf-based NRIs. The bank has plans to hold several conferences in the Gulf region in order to woo NRIs. SIB has reserved almost 44 per cent of the public offer to employees (1.6 crore shares or 10 per cent of the issue size), NRIs/OCBs/FIIs (2.2 crore shares) and financial institutions and banks (3.2 crore shares). The South Indian Bank issue opens on September 22 and closes on October 3.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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