Corporates Put Bond Issues On Backburner

Mumbai, May 30: | Updated: May 31 2002, 05:30am hrs
War mongering and posturing seem to have claimed another casualty in addition to its already lengthy list. The latest in line is the corporate bond market.

Bankers say that quite a few corporates have put their borrowing programmes on hold for the moment keeping in mind the uncertainty prevailing in financial markets due to border tensions and the war of words.

Said a merchant banker: There is too much fluctuation in the market and nobody wants to take a call on which way interest rates are going to move. As a merchant banker, there is no rate that I can assure when a corporate approaches me. Everybody is taking a look at the timing before going ahead. Some of the corporates taking a relook at the timing of their issues are GE Shipping, Sterlite and Forbes Gokak. That is why some corporates have taken to short-term borrowings linked to Mibor. Once things become clearer, they will resort to longer term borrowing.

Corporates normally start their borrowing programmes in May and June because their requirements for the year are decided in April and May after the closure of accounts for the financial year ended March 31.

Said a banker: Normally, a significant amount of borrowing takes place in May and June which has not been taken place this year. Corporates are preferring to sit it out and wait for a month or two and see how the situation is. But the borrowing programmes cannot be postponed for too long also. They will probably take a call in 10-15 days time depending on the situation.

Before all this started, the five-year corporate bond was seen at 8.25-8.30 per cent and there was strong demand. But now, the five-year corporate bond is at 8.60 per cent levels and demand has fallen.

While investors prefer to wait for the picture to become a little clearer before investing, issuers are waiting to get a batter rate.

Corporates are taking a relook before hitting the bond market due to two reasons rates have gone up after the 10-year benchmark gilts (G-Sec) yield curve was seen at a low of 7.10 per cent and is now at 7.60 per cent levels and the volatility in the market has made it difficult for arrangers to have the bonds underwritten. It had been expected that the yields would have got better, but this did not happen due to tensions on the border.

Corporates are preferring to wait and watch than raise five-year money at a higher interest and pay a higher rate throughout the next five years. Even the short-term corporate bond has been affected.