Companies put bond issues on hold

Aarti Shetty

Mumbai, May 16: BHARAT Petroleum Corporation Ltd (BPCL), Gujarat State Road Transport (GSRT) and Dewan Housing Finance are among the scores of corporates who have lined up bond issues, but are holding on in anticipation of a bank rate cut.

Dewan Housing Finance, which was supposed to have come out with their issue two weeks ago, deferred it after news of an imminent cut in key rates. BPCL, whose issue was supposed to hit the market last week, also made a similar decision.

With the Reserve Bank of India’s (RBI) cash reserve ratio (CRR) cut last Saturday by 50 basis points (bps) to 7.5 per cent, and the central bank’s bias towards an easy interest rate regime, it is now felt that a similar cut in the Bank rate now pegged at seven per cent is now on the cards.

Hopes have risen with the US Federal Reserve cutting its rate by 50 bps to four per cent. It might be recalled that the RBI has almost kept pace with the US Federal Reserve this calendar by progressively reducing the Bank rate.

Bond market analysts pointed out that companies which were waiting for a CRR cut before hitting the bond-mart are once again waiting for a like move on the bank rate front.

“The entire focus has shifted to the bank rate. Corporates are waiting anxiously for the next round of bank rate cuts to give their bonds the necessary fillip,” said an analyst.

At present, the bond market is nothing to write home about. Even tax-free bonds are receiving a lukewarm response. For instance, Hudco’s Rs 1,500 crore tax free bond which was to come out as also a like one of Rs 500 crore by the National Housing Bank (NHB) have been affected by Section-14A of the latest Finance Bill.
The new section does not allow deduction of tax expenditure related to income which is not chargeable to tax.
This section has virtually killed the market for preference shares, growth schemes of mutual funds and tax-free bonds.