Nandita DattaÎThe stage has been set for the clash of the titans. Beginning next week, all eyes will be on IDBI's omni bonds and IRFC's taxable bonds as they sweat it out for a slice of the private placement pie. While IDBI is banking on its brand equity and image to see its issue through, IRFC will lure bulk investors with a higher coupon rate. While both the AAA rated institutions are targeting banks and institutions which are flush with funds post-credit policy, the coupon on these papers are lower than what the recently-closed Reliance NCD issue offered.

IDBI's private placement will be more keenly watched because it is testing the waters with the lowest coupon of 13.50 per cent. If it is succeeds, more institutions will follow suit at a similar rate. In fact, market sources say the institution has retained nine arrangers to aggressively sell the issue. ``Most banks and provident funds already have a large exposure in IDBI, so they may not be over enthusiastic about the current offer. Besides, picking up the previous omni bonds (which offered a higher coupon) from the secondary market is much more lucrative for these investors. An intensive marketing effort will be required to sell the issue,'' says one arranger. This is probably one reason why IDBI has specifically picked up Lodha Capital, Allianz Capital and Integrated Capital to market the issue in the northern, eastern and southern regions of the country in addition to the traditional investor belt of Maharashtra and Gujarat. IDBI will also be targeting smaller banks which generally find it difficult to lend money to top-notch clients.

IDBI's omni bonds give two options -- vanilla bonds and floating rate bonds. The tenure is for five years with a put and call option after three years. Of the two bonds, the one with a floating interest rate seems a better option as it offers a better yield of 14.4 per cent (if one takes into account the current interest of 13.05 on the 10-year government security). The interest rate will be reset every six months and there is a floor rate of 13.25 per cent. To discourage investors from exercising the put option, there is a redemption premium of 1.5 per cent on the face value of the bond.

IRFC, on the other hand, has fixed the coupon of its vanilla bond at 14.25 per cent payable semi-annually. ``The coupon was decided after taking into account the fact that the SBI prime lending rate is 14 per cent and as we are targeting banks, we cannot afford to offer sub-PLR rates,'' says C S Verma, General Manager (Bonds), IRFC. The minimum application of Rs 25,000 makes the issue within the reach of high networth individuals, unlike the IDBI issue where the minimum application is Rs 1 lakh. IRFC officials claim the high coupon would see a surge of applications pouring in attracted by the higher coupon.

However, brokers say IRFC is generally not known for its servicing and this will be major disadvantage for the institution vis-a-vis IDBI. ``Allotment in IRFC can take up to three or four months and not many bulk investors will be prepared to wait that long. Besides, the general feeling is that IRFC is popping up so much money because it has some payment schedules lined up for next month,'' says a Delhi-based broker. However, IRFC officials refute the charges and say they are positive of a good response from banks and institutions.

Interestingly, the two private placements will face some competition from UTI's Institutional Investors' Special Fund 1977, which opened for subscription last month. Targeted at bulk investors with a minimum application of Rs 10 lakh, the scheme offers an assured dividend of 15 per cent payable every year for five years. While this is attractive, there is a risk element as the repurchase after three years is NAV-related.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.