Hike in bank rate puts IOC, IRFC private-placement issues in a jeopardy
Nandita Datta
NEW DELHI, January 20: The private placement of bonds by IOC, IRFC and IREDA has run into rough weather after RBI's decision to hike the bank rate. The book-building process for these issues has been affected as institutional investors have withdrawn commitments made to the book-runners on the ground that the indicative coupon is no longer relevant. With short- and medium-term interest rates going up, institutions want to wait and watch till things stabilise before committing themselves.Says an official with one of the book-runners to the IOC issue: ``Letters for book-building have been withdrawn.'' However, another merchant banker said only verbal commitments given by institutions and banks have been withdrawn as they are not sure where the interest rates will stabilise. ``Generally, in a book-building process, official notification for the commitment comes only on the last day. However, institutions verbally commit themselves into picking up a portion of the issue at a certain coupon. In an uncertain
interest rate regime, institutions prefer to hold back commitments.'' In most cases, sources say, re-pricing will be needed. IRFC managing director P Rajagoplan says the situation is very fluid. Although he did not confirm whether investors have actually withdrawn commitments to IRFC's tax-free bonds, he said a decision on the indicative band will be taken soon. ``The board will meet shortly to decide whether the indicative band for the coupon rate needs to be hiked,'' he added. IRFC's 10-year tax-free bonds carry an indicative coupon of 9-9.5 per cent. Incidentally, even before the RBI announcement, merchant bankers were sceptical of the indicative band as they felt that the ruling rate for a 10-year paper was around 10.5 to 11 per cent. However, IRFC seemed confident of an overwhelming response and, hence, the decision to retain an oversubscription of up to 3 times the issue amount of Rs 75 crore. The book-runners say the indicative band in most cases may have to be revised upwards. Says a merchant
banker, ``For a five-year taxable paper, the coupon should be around 14 per cent payable annually.'' In fact, all private placements may see a one to one-and-a-half per cent rise in coupon rate. Even in cases where the book-building issue is not being followed, issuers are planning to revise their coupon rates. Power Finance Corporation, for instance, has said the fixed-rate coupon of 12.5 per cent payable half-yearly is likely to be revised soon. Says a company official, ``We will not withdraw the issue; but probably may revise the coupon.'' Unlike IRFC, the Indian Oil Corporation bond issue offered an indicative band of around 11.5-12 per cent. The five-year paper also offered a put and call option after 3 years. The book-runners to the issue include SBI Capital Markets, Enam Financial, Kotak Mahindra, DSP Merrill Lynch and RR Financial. On the other hand, Credit Lyonnais is the arranger, underwriter and book-runner for the IRFC issue. IREDA's Rs 100-crore issue offered an indicative band of 9-9.5 per
cent payable semi-annually. The seven-year bond is being sold through Canara Bank. Meanwhile, the IFCI and ICICI private placement of bonds, which were open when RBI announced the hike in bank rate, have received a mixed response. IFCI has managed to scrape through by mopping up around Rs 300 crore (the target) as the issue was pre-syndicated to the issue amount. ICICI's private placement, however, has received a lukewarm response and may be re-priced soon, say market sources. The coupon rate on IDBI's Flexibond 3 has not been hiked so far. Says IDBI's chief general manager MM Haque: ``We are waiting to see if the institutions hike their lending rates. Only if our lending rate goes up will we hike the coupon on our public issue.'' According to him, the IDBI top-brass will be meeting soon to discuss the issue.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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