Yields back to pre-Sept 11 levels; IOC, IPCL, MSEB lead pack

Corporates rush to raise CPs, bonds as markets recover

Atmadip Ray & Ujjal K Basu Roy

Mumbai, Oct 15: Improvement in inter-bank market sentiment with yields dipping back to their pre-September 11 levels has led to corporates tapping the commercial paper (CP) and the primary bond market in all earnest.

In the CP market, names include the Indian Oil Corporation (IOC), Indian Petrochemical Corporation Ltd (IPCL), Sundaram Clayton and Berger Paints, while in the bond market it is the National Capital Region Planning Board (NCRPB), Andhra Pradesh Power Finance Corporation (APPFC). In the pipeline is the offering by the Maharashtra State Electricity Board (MSEB) while LIC Housing Finance Corporation (LICHF) is already in the market.

Corporates, which were waiting for the markets to improve before issuing commercial paper (CP) to raise short-term funds have been venturing into the market again with the market easing quite a lot and yields back at their pre-September 11 levels.

Markets now are more or less stable and with yields coming down, corporates across-the-board are re-entering the CP market. Yields have been coming down from their earlier highs: short-term rates for CPs had increased to 8.80 per cent from around 7.80 per cent immediately after the US attacks.

During the last week, yields for CPs for the top-rated corporates hovered between 7.90 per cent and 8.20 per cent.

IOC has mopped up Rs 245 crore during the last week through CPs. IOC re-entered the market and Monday last (October 8) issued CPs worth Rs 50 crore with a green-shoe option. The issue got an overwhelming response of Rs 355 crore, and IOC retained Rs 155 crore at a yield of 8.19 per cent.

The company on Friday (October 12) again issued CPs worth Rs 50 crore and got an overwhelming response of Rs 385 crore. IOC retained Rs 90 crore with a even lower yield of 8.04 per cent. IOC’s CP offerings have been raised online using the auction-based negotiated trading platform of Riskxpress.com. IPCL has also issued CPs worth Rs 150 crore.

A similar trend has also been observed for the mid-rated corporates. Quite a few like Sundaram Clayton, TI Cycles, Clariant, Berger Paints amongst others issued CPs to mobilise short-term funds during the last week.

The CP market had suffered a jolt after the US crisis: September saw a meagre Rs 950 crore in CP issuances as compared to Rs 2,600 crore in August on the National Stock Exchange (NSE).

Corporates were cautious after the terrorist attacks on the US, and had chosen to defer their CP issuances.

The market turned volatile and yields shot up to 8.80 per cent. Just after the US crisis, a few like the Housing Development Financial Corporation (HDFC) had raised Rs 50 crore through CPs at 8.80 per cent, higher from its earlier borrowing rates of 7.50 per cent to 7.75 per cent.

Likewise, Tata Chemicals and ACC had raised Rs 45 crore with a yield of 8.50 per cent and Rs 20 crore with of 8.75 per cent respectively. L&T had also raised Rs 10 crore at 8.80 per cent.

On the bond markets, IndusInd Bank senior vice-president and head treasury, Sharukh Wadia was of the view, “The bond market has almost come back to normal but volumes are still not what they were before the US crisis. If the war had not taken place, volumes would have been back to normal.”

Be that as may, some like Allahabad Bank’s issue had been fully subscribed to and that too, within a couple of days. HMT’s government-guaranteed bond issue of Rs 100-crore with the green-shoe option retaining the over-subscription is in the market. LICHF has also hit the market with a Rs 150-crore secured, non-convertible, redeemable bonds issue in the nature of debentures with an open-ended green-shoe option. The coupon (book-building range) is between 8.95 per cent and 9.60 per cent.

Said a banker: “Investors are thinking twice before investing, but issuers have not hiked the coupons to account for the additional risk. The markets are recovering and it is definitely not as bad as it was in the immediate aftermath of the September 11 attacks.