MUMBAI, June 25: The Industrial Credit and Investment Corporation of India (ICICI) has struck the first buy-back deal on Thursday by buying back some of its overseas-listed bonds. Investment bankers to the term-lending institution bought back ICICI bonds worth around $2.5 million in several small deals from US investors on Thursday. Negotiations are on with several other US investors for similar buy-back deals. The final pricing and other details will be known only after the US market closes on Thursday. Confirming the deal, ICICI general manager and head of treasury Nachiket Mor said the institution was looking for good buy opportunities where the spread is good. He said since liquidity in Indian papers is very low, it is difficult to get enough papers at the quoted price, which offers a large spread."The objective is to bring down the high spread on Indian papers.
Unless the spread comes down, we are not able to access the market to raise fresh foreign exchange resources as the secondary market priceserves as the benchmark for the yield on new papers," Mor said. This is the first time an domestic company is buying back its own overseas-listed debt securities ever since the Reserve Bank of India (RBI) has allowed buy-back of papers from secondary markets abroad. ICICI will extinguish the securities after completing all legal procedures involved in the deal.
While permitting ICICI to buy-back its overseas bonds, the RBI has insisted that the buy-back has to be for extinguishing the bonds. The buy-back will reduce the country's foreign exchange debt. The buy-back has been made with ICICI's rupee resources instead of its foreign exchange surplus. The Reserve Bank had insisted that the buy-back be made with ICICI's rupee resources.
This in effect means that the institution needs to purchase dollar from the domestic market for buying back the bonds. The institution has, so far, had ten overseas debt issues, including three bond issues in Switzerland, two private placement issues in Japan, threefloating-rate note (FRN) issues, two fixed-rate Euro-bond issues and one Yankee bond ($150 million) issue Initially, ICICI had wanted to use the buy-back provision to park its surplus foreign exchange funds in high-yield securities of its own as well as to reduce the large spread at which its paper was traded abroad.
The Moody's downgrade of India has opened up opportunity for ICICI to take advantage of the RBI permission. The spread on Indian papers shot up to nearly 800 basis points above the US treasury bills in wake of the downgrade.RBI had also allowed financial institutions to buy-back other papers of Indian corporates. The institutions are awaiting detailed RBI notification on the issue before plunging into the lucrative opportunity.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
