Mumbai, Feb 27: Signalling a further hardening of interest rates in the private placement market, two public sector undertakings -- Krishna Bhagiya Jal Nigam Ltd (KBJNL) and Andhra Pradesh State Electricity Board -- are offering 15.75 per cent for five-year papers. This is the highest coupon offered on a five-year paper in recent times. Both the companies are targeting to mobilise Rs 100 crore each.The issues have got double-A (AA) rating with structured obligation (SO) from Crisil and are guaranteed by the state governments. Both the issues will close in the first week of March.
In yet another offering of innovative financial instruments, the Industrial Credit & Investment Corporation of India (ICICI) is offering 2.25 per cent over the bank rate for a three-year paper which has put option at the end of every year. Since the bank rate is currently pegged at 11 per cent, the ICICI paper is offering a coupon of 13.25 per cent for one year.
The ICICI issue -- which has no target amount -- is drawing goodresponse from the institutional investors. The Orissa-based Gridco, a government undertaking, is offering 15 per cent for a five-year paper with a put option at the end of three years.
In sharp contrast to the trend prevailing about two months back, the return in the private placement segment has surpassed public offerings of the bond issues, said sources at SBI Caps.
The merchant banking arm of the State Bank of Inndia has maintained its lead in managing the private placement of issues in recent times.
The Industrial Development Bank of India (IDBI) had offered a maximum 13.36 per cent in its recently-concluded public issue.
The institution revised the coupon rates upward in the wake of the Reserve Bank's announcement of a string of tight money measures in mid-January which triggered a temporary liquidity crisis. The private placement market is gradually drying up as institutional investors have exhausted their annual budget for the current fiscal and the borrowers are waiting to see the interestrate down in the beginning of the next fiscal, sources said.
Though the institutions were mobilising resources for a year or two in the private placement segment till recently, they have now stopped borrowing short-term funds as the interest rates have flared up substantially which is also reflected in the bank deposit rates, sources said.
However, the interest rates on inter-corporate deposits, certificates of deposit and commercial papers -- which are closely linked to the overnight call rates -- have been stabilised at 14-15 per cent for one year funds.
INSIGHT
Rates show upward trend
The higher coupon shows clearly that interest rates have hardened across the board even at the medium end of the maturity spectrum.
In the secondary market, the yield on five-year government securities is slightly less than 12.5 per cent, and there are chances of the yield hardening with money being tighter in March.
Net bank liquidity has been falling, and, if the trend continues, interest rateswill stay up. However, long-term bank deposit rates are yet to move up significantly, indicating that there is a view that interest rates may ease after some time. Much will depend on Reserve Bank of India's slack-season monetary and crdit policy.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
