Mumbai, July 1: TATA Sons garnered Rs 40 crore through floating rate bonds on Monday. The blue-chip company privately placed the five-year, floating rate note issue pegged at 100 basis points above the prime lending rate of the State Bank of India on June 24.

The FRN issue was placed a day before the Reserve Bank of India cut the bank rate to 10 per cent from 11 per cent.

Commercial banks rushed to pick up the bonds on Monday to avail themselves of a better yields, fund managers said.

The coupon dipped 50 basis points on Tuesday after SBI lowered its prime lending rate on Saturday by half a percentage point at 13.5 per cent.In other words, the Tata Sons will pay a coupon of 15 per cent till June 30 and a coupon of 14.5 per cent from Tuesday.

Bankers rushed to pick up the issue on Monday because they feared the dip in coupon rate if they postponed investment decisions by a day, fund managers said.

Tata Sons' FRN at 15 per cent, (as of Monday) was still attractive to bankers when compared with a 14.75-per cent, 5-year bond issued by the same company in May.

Tata Sons mopped up Rs 50 crore at a coupon rate of 14.75 per cent in the last week of May. The paper has a five year maturity with no call and put option.

Treasury heads in banks are unanimous that the interest rates are heading southward as there is enough of liquidity in the system.

"Fifteenper cent return from a triple A corporate when interest rates are declining is a very good investment," said a senior treasury manager at a state-run bank.

Analysts said that this fund gathering exercises of Tata Sons is perhaps to repay old debt.

"They need funds to meet their requirements which include repayments of old debts, a source said.

Meanwhile, in the secondary bond market, banks are shifting focus to tax-free bonds. Tax-free bonds are hovering aroud 11 to 12 per cent yields while government bonds of a similar tenure are at much lower yields, a treasury chief in private sector bank pointed out. u

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.