IRFC stops bidding on bond as investors seek higher yield

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Mumbai | Updated: March 12, 2015 5:22:39 AM

Indian Railway Finance Corporation (IRFC) — the finance arm of Indian Railways — has discontinued the bidding on a bond issue through...

Indian Railway Finance Corporation (IRFC) — the finance arm of Indian Railways — has discontinued the bidding on a bond issue through which it was aiming to raise about R3,000 crore on Wednesday because investors asked for a higher yield.

Bond arrangers said bidders were asking for a coupon rate in the range of 8.38 to 8.50%. However, IRFC had sought to issue the bonds below 8.27%.

Since the bond came with a tenure of two years, one month and two days, foreign institutional investors could not participate in the issue because of an RBI guideline that restricts all investment by foreign porfolio investors in the debt market to be made with a minimum residual maturity of three years. Moreover, market participants say this structure was not favoured by most investors because of tax issues.

Indian Railway Finance Corporation, Indian railways, IRFC, foreign institutional investors, RBI, Edelweiss Securities

“Since foreign institutional investors could not participate in the short-term issue due to the RBI restriction, there was a limited segment of investors who could participate. This pushed the yields higher,” said Ajay Manglunia, senior vice-president-fixed income, Edelweiss Securities.

Bond arrangers also indicate that the company is likely to return to the market soon. “We will take a decision on the bond issue by Thursday.” said a source from IRFC who added that the company has committed to raising R12,045 crore for Railways in FY15, out of which R7,659 crore has already been raised.

Of R7,659 crore, IRFC had raised R2,625 crore through bonds of two-year maturity in January this year at a coupon rate of 7.83%.

On Wednesday, the Life Insurance Corporation of India (LIC) committed to invest R1.5 lakh crore in railway infra projects over the next five years, according to press information bureau. An MoU has been signed between LIC and Railways in this regard.

State-owned companies have been queuing up to raise funds through the bond market over the last couple of days. Power Finance Corporation had managed to raise nearly R1,000 crore on Tuesday at a coupon rate of 8.29%. Rural Electrification Corporation recently raised R700 crore through seven-year bonds at a coupon rate of 8.27%.

Nuclear Power Corporation of India, IDBI Bank and State Bank of Bikaner and Jaipur are in the pipeline to raise funds through the bond market according to sources.

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