Mumbai: Some Indian companies are raising funds from the primary market via debt issues after the country’s central bank kept rates steady last month and to exploit ample cash conditions in the banking system, merchant bankers said on 8 May.
Power Finance Corporation (PFC), state-run lender to the power sector, has invited bids for a 10-year bond sale for a Rs200 crore issue, while mortgage lender LIC Housing Finance Ltd privately placed Rs200 crore worth of 10-year bonds at 10.25% with a clutch of investors.
“The demand for these papers will set the tone for the next issuers. They are testing the waters and we may see this trickle turn into a flood in the coming weeks,” said a senior dealer at a primary dealership.
The Reserve Bank of India (RBI) left its key rates on hold last month at a scheduled meeting after raising its lending rate five times in the past 12 months.
Infrastructure Development Finance Co. Ltd is raising Rs100 crore and National Bank for Agriculture and Rural Development (Nabard), a state-run farm sector lender, is raising Rs350 crore plus a greenshoe option.
Ample cash in the banking system was evident from the overnight loan rates, or the rate which banks charge each other for funds, being quoted at more than one-month lows of 5.75/6%.
Merchant bankers said they have already received commitments for up to Rs400 crore for the Nabard bond sale, underscoring the robust demand among investors for the issue. The issue opened on 7 May and is closing on 11 May.
It is raising the funds at 10% for a tenor of five years.
The only exception to the robust demand for debt is the Food Corporation of India (FCI) issue which placed about Rs2,000 crore in bonds with insurance companies and other investors out of a total issue size of about Rs4,000 crore.
“The oil and the food bonds are seeing some investor fatigue. They have stuffed nearly Rs5,500 crore worth of bonds since April and the market is still digesting them,” said a merchant banker.
Bankers said state-run Punjab National Bank and Oriental Bank of Commerce are planning bond sales in the coming months.
The yield on Reuters’ benchmark five-year corporate paper was at 9.90% on Tuesday, lower from the previous close of 9.98%.
The spread between the five-year corporate paper and government debt was at 167 basis points, unchanged from the previous week.