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Bond yields steady, supplies awaited

Neha D’silva / Reuters — Mon, 16 Nov 2009 12:47:00 GMT

Mumbai: The federal bond yields came off day’s low on Monday as traders pared positions following a drop in yields on lower-than-expected inflation in October, but eyed forthcoming auctions and global cues for further direction.

The yield on the 10-year benchmark bond ended at 7.31%, 1 basis point below its previous closing of 7.32%.

Volumes were a heavy Rs67.15 billion ($1.5 billion) on the Reserve Bank of India’s trading platform.

“Market will be watching for global events in the next few days... return of risk appetite, crude prices,” said Piyush Wadhwa, senior vice-president at ICICI Securities Primary Dealership in Mumbai.

“According to the calendar, there won’t be an auction next week so this week’s auction should be well-bid and yields could probably come off a bit provided global events are favourable.

“Yields could remain in the range of 7.25-7.35% in the near term,” Wadhwa said.

Annual wholesale price index based inflation accelerated in October from a month earlier on costlier minerals and fuels, and analysts expect monetary tightening from next year as the economy picks up.

The central bank will auction Rs70 billion of treasury bills on Wednesday, ahead of a Rs100 billion bonds sale on Friday.

Long-dated Treasuries edged higher in Europe on Monday, with markets anticipating US Federal Reserve chairman Ben Bernanke to reiterate interest rates would stay low for some time. Bernanke is scheduled to address the Economic Club of New York at 1715 GMT.

In interest rate futures on the National Stock Exchange (NSE), the December contract was implying an yield of 7.9823%, above its previous close of 7.9244%.

The yield implied in the March contract was at 8.2716%, down from its previous close of 8.3333%.

The benchmark five-year interest rate swap closed at 6.69/73%, from Friday’s close of 6.67/70.

Tata Steel to swap convertibles for easy repayments

Reuters — Thu, 12 Nov 2009 05:29:00 GMT

Mumbai: India’s Tata Steel, the world’s No. 8 steelmaker, on Thursday approved a new convertible bonds offer in exchange for an existing $875 million securities, in an effort to reduce costs and ease repayment obligations.

Tata Steel said the new foreign currency convertible bonds will have an yield-to-maturity of 4.5% and will mature in November 2014.

The bonds are convertible into shares at Rs605.53 each, a 15% to the closing price on Wednesday at a fixed Rs46.36 to the dollar exchange rate.

The existing convertible alternative reference securities had a yield-to-maturity of 5.15% and were due in 2012. The securities were convertible at Rs733, and had a redemption premium of 23% in case they were not converted.

“I think the company was not confident of its stock reaching that price, which means it would face a big redemption in a single year,” said Pawan Burde, sector analyst at Mumbai-based PINC Research.

“This probably reflects their concerns over growth amid the downturn in the global steel industry,” he said.

Shares in the company, worth $10 billion, fell as much as much as 3.5 percent on growth prospects. At 10:50am, they were trading down 3.3% at Rs509.90.

Tata Steel said it was making the exchange offer to lengthen its debt maturity profile, lowering cost and potentially reducing future repayment obligations.

“Basically, it gives us option to extend the repayment schedule by two years,” said a company official, who declined to be named as he was not authorised to speak to the media.

In Hong Kong, sources familiar with the matter told Reuters Tata Steel expects conversion for at least $400 million worth of securities.

Standard Chartered Bank, ABN AMRO Bank, Citigroup and Calyon are the managers to the exchange offering, Tata Steel said.

Markets | Tata Power to raise $300 mn selling bonds

Bloomberg — Fri, 06 Nov 2009 17:28:00 GMT

New Delhi: The country’s biggest non- state power producer, Tata Power Co. Ltd, said it plans to raise as much as $300 million selling bonds to fund projects aimed at doubling generation capacity in the next three years.

The bonds will carry a coupon of 1-1.75% and are convertible at 10% over the 5 November closing price of its shares on the National Stock Exchange, the utility said in a statement to the Bombay Stock Exchange on Friday.

PowerGrid to raise Rs3,000 cr via bond sale by January

PTI — Wed, 04 Nov 2009 11:31:00 GMT

New Delhi: Central transmission utility PowerGrid on Wednesday said it would raise Rs3,000 crore through bonds by January next year.

“We would raise Rs3,000 crore via bond sale by January 2010,” PowerGrid director (finance) J Sridharan told reporters on the sidelines of the Economic Editor’s conference here.

The company is also seeking loans of Rs8,750 crore from the World Bank and the Asian Development Bank to fund upcoming transmission projects in the country.

PowerGrid had earlier said that it has sent a proposal to the ministry of finance through the power ministry to negotiate with the multilateral lending agencies.

The company plans to invest Rs55,000 crore to set up transmission lines in the country during the current Five Year Plan (2007-12).

PowerGrid plans to augment its transmission capacity to 23,400 MW in the current fiscal (2009-10) from the existing 19,800 MW and enhance it to 37,000 MW within the Plan period.

RBI proposes 90-day lock-in for non-convertible debentures

Anup Roy — Tue, 03 Nov 2009 16:20:00 GMT

Mumbai: The Reserve Bank of India, or RBI, on Tuesday raised objections to the buy and sell options of non-convertible debentures (NCDs) within a short period of issuance and said that such option should not be exercised before 90 days of issuance.

Currently, NCDs with maturity of less than a year are not regulated by either the capital markets regulator Securities and Exchange Board of India, or Sebi, or by RBI.

“Often, these instruments are issued with call/put options embedded in it, which impart a demand-liability like character to these instruments,” RBI said, adding that these instruments need to be regulated “as they have systemic implications and such instruments, being money market instruments...should be regulated by the Reserve Bank.”

NCDs are a popular form of money market instrument for companies that typically issue these papers with a call/put option of 10-15 days. Although the bond may have a maturity of three to five years, the bond is terminated as soon as the call or put option is exercised by the borrower and the investor. Thus, even if the bond is of a higher maturity, it ceases to exist after a call/put option is exercised.

In its draft guidelines for issuance of NCDs that mature in less than a year, RBI has said that those with maturity periods of less than 90 days should not be issued. Such papers shall be valid only till the date that the credit rating of the issuing company is valid.

The NCDs have to be issued in denominations of Rs5 lakh or multiples and the amount invested by a single investor should not be less than Rs5 lakh RBI said. It added that the total amount of the NCDs issued should be raised within two weeks of issuance.

A company with a net worth of Rs4 crore or more can issue short-term NCDs, which have to be rated by at least one credit rating agency.

Under the new regulation, NCDs that have maturity of more than a year but carry a call/put option of being exercised within a year of issue will no longer be allowed to be terminated before 90 days.

Comments on this draft, prepared by an internal working group of Sebi and RBI can be submitted by 20 November, the central bank said.

Essar Group unit raises $920 mn via bonds

Reuters — Thu, 22 Oct 2009 05:22:00 GMT

Mumbai: A unit of India’s Essar group has raised about Rs43 billion ($920 million) via zero-coupon bonds, two sources with direct knowledge of the transaction said on Thursday.

“ETHL Communications Holdings Ltd sold bonds maturing in July 2011 at a yield of 9.15% and bonds maturing December 2011 at a yield of 9.25%,” a source said. The bonds are rated ‘AAA´ by Fitch Ratings.

“The amount raised is based on the $923 million put,” the source added.

The bonds are backed by receivables under a put option agreement for Essar’s 10.97% equity stake in Vodafone Essar. Fitch said Vodafone’s obligations in the put option linked the credit of the bonds to that of the British telecom firm.

The issue had aimed to raise at least Rs22.5 billion and had an unspecified greenshoe option.

Barclays is the lead arranger to the transaction. The other arrangers are Deutsche Bank, JPMorgan and Standard Chartered.

ETHL Communications holds part of the Essar Group’s minority stake in Vodafone Essar Ltd, India’s third-largest mobile operator. Vodafone Essar is majority owned by Britain’s Vodafone Plc.

Bond yields ease on inflation data

Neha D’silva / Reuters — Thu, 08 Oct 2009 13:02:00 GMT

Mumbai: The federal bond yields eased on Thursday after inflation rate for end-September unexpectedly slowed, giving a brief respite to the market in the backdrop of uncertainties over the timing of exit from easy money policy.

The widely watched wholesale price index (WPI) rose by 0.7% in the 12 months to 26 September, below both market forecasts and the previous week’s 0.83% annual rise.

The benchmark 10-year bond yield closed at 7.22%, after falling as low as 7.17% after the data. It had ended at 7.25% on Wednesday.

Volumes were a heavy Rs97.75 billion ($2.1 billion) on the central bank’s trading platform.

“The market does not have a definite direction and inflation data was a small trigger,” said Sanjay Arya, deputy general manager, treasury, at state-run Bank of Maharashtra.

“Since the last few days there has been some selling, so short covering also may be there but yields are moving in a very narrow range,” he added.

Bond yields also found support from the finance minister’s comments after market hours on Wednesday that India needs more time before deciding on an exit from accommodative policy.

The finance minister’s statement came after the central bank governor said on Monday that there was broad agreement India needed to step back from its easy policy stance, but timing was delicate.

Dealers said they would watch for South Korea’s rate decision on Friday after Australia became the first among the G20 countries to hike rates on Tuesday.

A Reuters poll, conducted before the Australian rate rise, showed seven out of 15 analysts expect the Bank of Korea to raise its base rate in November. The rest predicted a raise in the first quarter of 2010.

Results of the government’s Rs100 billion bond auction on Friday will be watched after disappointing results at the treasury bills and state loan auctions this week, traders said.

“Yields may rise tomorrow because of the auction and the benchmark 10-year bond is also on sale,” Arya of Bank of Maharashtra said.

In interest rate futures on the National Stock Exchange (NSE), the December contract was implying a yield of 7.9846%, higher than 7.9612% on Wednesday.

The benchmark five-year interest rate swap was at 6.81/86%, almost steady at its previous close of 6.80/85.

Dilemma on timing of rate hikes: Subbarao

Cherian Thomas and Pooja Thakur / Bloomberg — Tue, 06 Oct 2009 16:10:00 GMT

New Delhi/Mumbai: India faces a dilemma on when to raise borrowing costs to contain inflation pressures as the economic recovery remains weak, Reserve Bank of India (RBI) governor D. Subbarao said.

“While there is a broad agreement that we need to exit from the present excessively accommodative monetary and fiscal policies, there is less agreement on when and how we should exit,” Subbarao said in Istanbul on Monday. “An early exit on inflation concerns runs the risk of derailing the fragile growth, while a delayed exit may endanger inflation expectations.”

Strong signals: RBI governor D. Subbarao will unveil the central bank’s next monetary policy statement on 27 October. The bank kept borrowing costs unchanged in its last review on 28 July. Indranil Bhoumik / Mint

Consumer-price inflation in India is running above 10% and may accelerate further as the weakest monsoon rains since 1972 creates food shortages. Subbarao wants to ensure that the money pumped into the economy to protect it from the global recession, amounting to more than 12% of gross domestic product, doesn’t create excessive demand for cars, mortgages and other products and worsen inflation.

“Inflation in India remains at elevated levels, thanks to persistently high food price rises,” said Robert Prior-Wandesforde, senior Asia economist at HSBC Holdings Plc in Singapore. “Although the Reserve Bank of India has been sounding more hawkish recently, we doubt it will make a rate move this year.”

India’s 10-year bonds fell, driving up yields from the lowest level in more than a week, after Subbarao signalled he may tighten policy before advanced economies.

“We may need to exit from accommodative monetary policy earlier than advanced economies,” Subbarao said. “This calls for careful management of trade-offs: growth concerns warrant a delayed exit, but inflation concerns call for an earlier exit.”

Subbarao, who will unveil the central bank’s next monetary policy statement on 27 October, kept borrowing costs unchanged in its last review on 28 July and signalled an end to its deepest round of interest-rate cuts on concern that inflation will creep up from October.

RBI reduced interest rates six times from October 2008 to April 2009 and slashed the cash reserve ratio, injecting about Rs5.6 trillion into the economy. The key reverse repurchase rate is at a record low of 3.25%.

In July, the bank forecast India’s economy to grow about 6% in the year ending 31 March, the weakest pace since 2003. It raised its key wholesale price inflation forecast to 5% from 4% by end of the financial year. The wholesale price index rose 0.83% in the week to 19 September.

The consumer prices index for agriculture labour jumped 12.9% in August from a year earlier while the index for industrial labour advanced 11.9%, according to government data. While India uses the wholesale price inflation data as its key price measure, it also calculates consumer price indices for rural and urban workers.

Subbarao said the confidence-restoring steps taken by major central banks around the world have encouraged foreign investors to return to emerging market equities. In India, foreign institutional investors bought $13.6 billion from 1 April to 18 September, compared with outflows of $5.2 billion in the same period a year ago, reflecting a turnaround of $19 billion.

Therefore, if India raises interest rates ahead of other central banks, the differential in borrowing costs may attract more capital flows into the country, Subbarao said, questioning the impact of that on the rupee.

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SBI to raise up to $1 bn by selling dollar bonds

Bloomberg — Fri, 02 Oct 2009 16:33:00 GMT

Bangalore: State Bank of India, or SBI, the nation’s largest bank, is seeking to raise $700 million (Rs3,353 crore) to $1 billion selling medium-term dollar bonds, chief financial officer S.S. Ranjan said over the phone. “Initial roadshows are going to be held.” He declined to provide details.

Bonds should rally: RBI deputy governor

Anusha Ondaatjie and Anoop Agrawal / Bloomberg — Mon, 28 Sep 2009 15:20:00 GMT

Colombo/Mumbai: The benchmark 10-year bonds should rally because the yield is too high, according to the Reserve Bank of India (RBI) deputy governor K.C. Chakrabarty.

The yield on the 6.90% bond maturing in July 2019, last week rose eight basis points to 7.17%, according to data compiled by Bloomberg. It reached 7.47% on 4 September, the highest level for a benchmark 10-year issue since November 2008. A basis point equals one-hundredth of a percentage point.

“I believe the 10-year bonds are not at their real rate,” Chakrabarty said in an interview, without elaborating on why yields are too high. “Seven percent is more reasonable.

Bond yields have increased 1.91 percentage points this year as the government announced record debt sales to finance stimulus needed to combat the economic slump.

The Asian Development Bank predicts gross domestic product will increase 6% this fiscal year, which would be the smallest gain since the 12 months ended March 2003. Government bonds lost 5.4% so far this year, the worst performance among 10 local-currency debt markets tracked by HSBC Holdings Plc indices.

Chakrabarty said RBI lets demand and supply conditions determine the exchange rate.

“If you appreciate the currency, exports will suffer,” he said. “So you have to keep the balance. That’s why we ask markets to determine the rates.”

The rupee rose 0.2% last week to 48.06 per dollar in Mumbai. It will climb 3.4% to 46.50 by the end of March, according to a median estimate of analysts surveyed.

Bond defaults begin to emerge

Mark to Market | Mobis Philipose and Ravi Ananthanarayanan — Sun, 27 Sep 2009 18:23:00 GMT

Do the names Rasandik Engineering Industries India Ltd and Venus Remedies Ltd ring a bell? Perhaps not. Well, these two firms defaulted on the repayment of their foreign currency convertible bonds (FCCBs) earlier this year, according to news reports by the Financial Chronicle and The Economic Times. They had raised $10 million (around Rs48 crore) and $12 million, respectively, in April 2006 by issuing convertible bonds with a three-year maturity period.

Bond holders of a much larger firm, Wockhardt Ltd, are also likely to get a raw deal when the bonds come up for redemption next month. The company is under a corporate debt restructuring programme and FCCB holders may either have to take a large haircut on their initial investment or resort to legal action against the company.

For now, these seem like a few cases of default and far between.

According to a banker with the Mumbai office of an overseas bank, who didn’t want to be identified, there may hardly be any more defaults since the availability of funding is much easier now both through the equity and debt routes. Whenever a repayment is due, companies can raise fresh funds if internal accruals are insufficient and repay the bond holders, the banker says. In fact, a few firms such as Firstsource Solutions Ltd have taken fresh external debt and have bought back bonds at a discount, thereby reducing their overall debt burden, well before the bonds come up for redemption.

But from the next year onwards, and especially in 2011, when a number of FCCBs mature, bond holders may be in for some more pain.

Companies such as Subex Ltd, whose convertible bonds mature in 2012, have an extremely high debt position and raising fresh funds may not be easy. The company recently announced an exchange offer for its bond holders without revealing details of the new bonds.

In the past, Suzlon Energy Ltd has been successful in getting some of its bond holders to participate in an exchange offer. It must be noted that even in such cases, bond holders end up taking a hit on their investment.

The main problem with FCCBs is that a large number of Indian companies viewed them as equity issuances and gave little or no thought to these instruments ending up as debt on their books. So in internal calculations, they never featured in their calculations of debt, leading to insurmountably high debt levels, as companies such as Wockhardt and Rasandik have now discovered.

Bond holders, too, ignored sound investing principles and just assumed that a rapid rise in the Indian stock market would lead to a conversion of the bonds.

But what’s even more interesting is that in the case of Venus Remedies, it seems to be a case of a wilful default, says another banker with an overseas firm. According to this executive, the company unsuccessfully tried negotiating with bond holders, which include some hedge funds.

FCCB holders are no ordinary investors; they are typically large investment firms and Indian companies should expect intense legal action from them in the event of a default. To be sure, Venus Remedies’ bond holders have filed a winding up petition against the company, according to The Economic Times report.

Write to us at marktomarket@livemint.com

Bonds drop for 2nd day before debt auction

Anoop Agrawal / Bloomberg — Fri, 25 Sep 2009 17:27:00 GMT

Mumbai: India’s bonds fell for a second day, pushing yields to the highest in almost two weeks, as investors sold before a debt auction on Friday.

The benchmark 10-year notes ended a two-week advance as the government sold more securities than it previously planned for the second consecutive time after an auction was cancelled in August.

The government sold Rs12,000 crore of bonds on Friday, Rs4,000 crore more than planned. It has scheduled to borrow a record Rs4.51 trillion in the fiscal year ending 31 March. “It is becoming difficult to manage the supply with not many positive factors to look forward to,” said Kamlesh Chand, a trader at IndusInd Bank Ltd in Mumbai. “Rising concerns because of the supply are getting reflected in yields rising.”

The yield on the 6.90% note due July 2019 rose six basis points to 7.17% at close in Mumbai, the highest since 14 September, according to the central bank’s trading system. The price fell 0.41 per Rs100 face amount, to 98.14.

The government sold, as planned, Rs6,000 crore of notes due 2017, Rs4,000 crore of debt maturing in 2020 and Rs2,000 crore of bonds due in 2032, the Reserve Bank of India (RBI) said on Friday. RBI, which manages government debt sales, rejected bids at a bond auction on 7 August, without providing details. It had planned to raise Rs12,000 crore. Bonds rose earlier in the day on speculation RBI won’t increase borrowing costs this year.

The cost of five-year interest-rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, declined. The rate, a fixed payment made to receive floating rates, fell to 6.56% from 6.58% on Thursday.

Bonds decline ahead of govt debt auction

Anoop Agrawal and Anil Varma / Bloomberg — Thu, 24 Sep 2009 17:19:00 GMT

Mumbai: The 10-year bonds fell for the second time in three days on speculation investors sold securities before a debt auction on Friday.

Yields on the benchmark notes due 2019 reversed an early decline as the government prepares to sell Rs12,000 crore of bonds, Rs4,000 crore more than planned.

This is the second week the government is raising more debt than planned after cancelling a sale in August.

The government plans to borrow a record Rs4.51 trillion from the bond market in the fiscal year ending March 31.

“The supply pressure is offsetting any optimism that is being priced in,” said Baljinder Singh, a fixed-income trader at state-owned Andhra Bank in Mumbai.

“I am expecting a further rise in yields in the run-up to the auctions,” Singh added.

The yield on the most-traded 6.9% note due July 2019 climbed two basis points to 7.11% at close in Mumbai, according to the Reserve Bank of India’s (RBI) trading system.

The price fell 0.11, or Re11 per Rs100 face amount, to 98.55. A basis point is one-hundredth of a percentage point.

Bonds also slipped after RBI on Thursday purchased fewer than planned securities in open-market operations.

RBI of India bought Rs1,970 crore billion of existing debt, less than the planned Rs60,00 crore.

The central bank bought Rs4,525 billion of existing debt in open-market operations on 17 September, following purchases of Rs4,300 crore on 10 September.

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Bond rates rise on RBI offer to buy back Rs6,000 crore debt

Anoop Agrawal / Bloomberg — Wed, 23 Sep 2009 15:46:00 GMT

Mumbai: India’s 10-year bonds gained on Wednesday after the central bank said it will offer to buy back existing debt at an auction on Thursday.

The Reserve Bank of India on Tuesday said it will purchase as much as Rs6,000 crore of securities as it helps the government to raise a record Rs4.51 trillion this fiscal year ending March. The government may borrow between Rs8,000 crore and Rs10,000 crore, ET Now television channel reported, citing finance minister Pranab Mukherjee.

The central bank’s move is supportive of bonds and should lead to a further drop in yields, said Devendra Das, a fixed-income trader at Development Credit Bank Ltd in Mumbai. It widens the scope of managing portfolios.

The yield on the most traded 6.90% note due in July 2019 dropped 4 basis points (bps) to 7.09% at close, according to the central bank’s trading system. The price climbed Re0.25 per-Rs100 face amount, to 98.66. A basis point is one-hundredth of a percentage point.

The central bank has offered to buy 7.56% bonds due in 2014, 6.05% notes due in 2019, 7.94% bonds due in 2021 and 7.5% debt maturing in 2034, according to a statement on Tuesday. RBI bought Rs4,525 crore worth of outstanding debt in open market operations on 17 September compared with Rs4,300 crore on 10 September.

The government will complete its borrowing programme for the fiscal year by the end of January, ET Now said, citing Mukherjee.

The cost of five-year interest rate swaps, or derivative contracts used to guard against fluctuations in borrowing costs, slipped.

The rate, a fixed payment made to receive floating rates, decreased to 6.61% from 6.64% on Tuesday.

Sam Nagarajan contributed to this story.

Bonds fall ahead of govt debt auction this week

Anoop Agrawal / Bloomberg — Tue, 22 Sep 2009 17:40:00 GMT

Mumbai: India’s bonds fell after the government said it will sell more debt than it previously planned at an auction this week.

The yield on the benchmark 10-year note rose from near a one-month low before the sale of Rs12,000 crore of bonds on 25 September, Rs4,000 crore more than planned. India plans to borrow a record Rs4.51 trillion from the bond market in this fiscal.

Investors were probably not anticipating the increased supply, which has caused some realignment of yields upwards, said Roy Paul, assistant manager of treasury at Federal Bank Ltd in Mumbai.

The yield on the 6.90% note due July 2019 rose three basis points to 7.12% at close in Mumbai, according to the central bank’s trading system. The price fell 0.22, or 22 paise per Rs100 face amount, to 98.43.

The government will offer Rs6,000 crore of notes due 2017, Rs4,000 crore of debt maturing in 2020 and Rs2,000 crore of bonds due in 2032 at this week’s auction, the Reserve Bank of India said in a statement.

The central bank, which manages government debt sales, rejected bids at a bond auction on 7 August, without providing details. It had planned to raise Rs12,000 crore.

Bond yields rise as supply concerns renewed

Reuters — Tue, 22 Sep 2009 13:59:00 GMT

Mumbai: The federal bond yields rose on Tuesday after a 50% increase in this week’s bond auction from its scheduled size renewed concerns about government borrowing needs and triggered a sell-off, traders said.

The benchmark 10-year bond yield ended at 7.13%, above Friday’s close of 7.09%. The market was shut on Monday for a holiday.

“I think people were creating room for the state loan auction today, and of course, they were also concerned about the size of Friday’s auction,” said a trader at a foreign bank.

The auction, the last of the first half of the 2009-10 fiscal year, was increased to Rs120 billion from a scheduled size of Rs80 billion.

Volumes were a moderate Rs69.05 billion ($1.4 billion) on the central bank’s trading platform.

Traders are waiting for the second half borrowing calendar, which is expected next week. A finance ministry official said last week the government would stick to its full-year borrowing plan of Rs4.51 trillion.

If government planned to complete its borrowing well ahead of the end of the fiscal year, the market might react negatively on fears additional borrowing may be announced, traders said.

Nine states sold around Rs91.1 billion of loans on Tuesday. Traders said the auction cut-off yields were largely in line with market expectations.

The central bank is also due to sell Rs60 billion of treasury bills on Wednesday.

After market hours on Tuesday, the central bank said it would buy back up to Rs60 billion of bonds from the market at an auction on 24 September.

Dealers said a sharper rise in yields was prevented by expectations the central bank would not raise policy rates any time soon, and that a possible change in accounting rules on hold-to-maturity accounts for banks could support demand.

The market will also watch for cues from the US Federal Reserve’s policy meeting. It is widely expected to maintain its near-zero interest rate policy in order to help the economy pull out of its worst downturn in 70 years.

In interest rate futures trade on the National Stock Exchange (NSE), the December contract rose to 7.9508% from Friday’s close of 7.9347%. The March contract was at 8.2027%, up from 8.0827%.

The benchmark five-year interest rate swap ended up at 6.61/66% from its previous close of 6.58/63.

India bond yields higher on supply concerns

Reuters — Tue, 22 Sep 2009 06:09:00 GMT

Mumbai: Indian federal bond yields inched higher on Tuesday after an increase in this week’s bond auction to 50% more than its scheduled size triggered concerns that government borrowing could still be larger than expected.

At 11:42am (0612 GMT), the benchmark 10-year bond yield was at 7.13%, above Friday’s close of 7.09%. The market was shut on Monday for a holiday.

“Size of the auction this week is higher than expected. Also, some investors seem to be reducing their positions ahead of the second-half calendar,” said Premanand Kamath, treasury head at Corporation Bank.

A finance ministry official said last week the government will stick to its full-year borrowing plan of Rs4.51 trillion and the borrowing calendar for October to March would be released on 29 September.

If government planned to complete its borrowing needs well ahead of the end of the fiscal year, the market might react negatively on fears additional borrowing may be announced, traders said.

Apart from Friday’s Rs120 billion bond auction, state loans worth Rs91.5 billion are to be auction on Tuesday and the central bank will sell Rs60 billion of treasury bills on Wednesday.

Dealers said the rise in yields could be capped by expectations the central bank would not starting tightening policy for some time, and on expectations that accounting rules on hold-to-maturity accounts could be changed for banks, which would support demand for debt.

Volumes were a moderate Rs31.35 billion ($0.65 billion) on the central bank’s trading platform.

The benchmark five-year interest rate swap edged up to 6.64/67% from Friday’s close of 6.58/63.

Power Grid to raise Rs2,500 cr through bond issue

PTI — Sun, 20 Sep 2009 14:26:00 GMT

Hyderabad: State-run power transmission utility, Power Grid Corporation of India Limited (PGCIL) would raise around Rs2,500 crore through a bond issue by October-November this year for financing various projects , a top official said here today.

“For our financial requirement, we will go for issuance of bonds. The first one will be in October-November this year for Rs2,500 crore and...if required, another bond issue by the end of this fiscal also for about Rs2,500 crore,” PGCIL chairman and managing director SK Chaturvedi said.

Speaking to reporters on the sidelines of a function, the PowerGrid CMD said they had sent proposals for underground sea-link between India and Sri Lanka for transmission.

“The MoUs for sea-link transmission between India and Sri Lanka are to be signed. We are also working on other over-seas projects in Dubai, Nigeria and Bhutan and are in discussion with Myanmar,” he said.

The company has already completed a power transmission project in Afghanistan, Chaturvedi said adding “Since elections were going on there, the formal handing over of the project will be done after the new government assumes charge.”

RBI issues guidelines on corporate debt as collateral

Anup Roy — Thu, 17 Sep 2009 16:32:00 GMT

Mumbai: The Reserve Bank of India (RBI) has released draft guidelines for borrowers to take loans from banks by pledging corporate debt securities as collateral, a move expected to boost secondary market trading in company bonds.

Cheaper borrowing: The central bank said that a margin of 25% or above would be applicable for availing of the facility. Ramesh Pathania / Mint

RBI said that a margin of 25% or above would be applicable for availing the facility. If a company deposits a corporate bond worth Rs100, it will get not more than Rs75 as a loan.

The facility will mean that the spread between a corporate bond and a similar-maturity government bond would narrow, and firms will find it cheaper to borrow from the market, according to S.S. Raghavan, head of treasury at IDBI Gilts Ltd, a firm that trades in bonds.

“The amounts borrowed in repo (by selling of corporate debt securities) shall be reckoned as borrowings for computation of CRR (cash reserve ratio) and SLR (statutory liquidity ratio) by banks,” RBI said in its draft guidelines.

Until now, banks have been counting only bonds issued by the Union or state governments for computing their CRR, or the proportion of deposits they have to keep with the central bank, and SLR, or mandatory investments in government bonds. CRR is now 5% and SLR 24%.

Only securities of listed companies with AA rating or above can be pledged as collateral. Short-term commercial paper, certificates of deposits and other instruments including non-convertible debentures of less than one year will be excluded.

“It’s quite a positive development for the corporate bond market,” said Alpana Dave, chief dealer, corporate bonds, at ICAP India Pvt. Ltd. “This is excellent that AA papers have been allowed for repo which will boost their demand in the market...the participation in the secondary market will increase manifold.”

Citi raises $5 bn through govt-backed bonds

PTI — Wed, 16 Sep 2009 10:05:00 GMT

London: Citigroup has raised $five billion via government-backed bonds, a move which may make it difficult for the financial services major to persuade the US government to lower its 34% stake in the bank, a media report says.

According to the Financial Times, Citigroup raised $5 billion through government-guaranteed bonds on Tuesday under an emergency facility that will expire in six weeks. The facility has been abandoned by most of Citi’s rivals as market conditions have improved.

“Citi’s move to tap the government-backed plan, introduced at the height of the crisis last year could complicate attempts by its management to persuade the government to reduce its 34% stake in the bank, ” the daily said.

Attributing to people close to the situation, the report said Citi was in early talks with the US Treasury over a plan that would enable the company to raise capital by selling shares and enable the authorities to pare their holding.

But Citi’s decision to sell two and three-year bonds backed by the Federal Deposit Insurance Corporation (FDIC) could reinforce the perception that the bank, which has received $45 billion in federal aid, is still not back to full health, the report noted.

FDIC-backed debt is cheaper to issue than normal debt because investors are prepared to accept a lower interest rate because of the government guarantee.