Only about half the quantum of state development loans (SDLs) that were put up for auction on Tuesday have made it through as four states rejected the bids due to higher pricing, according to bond dealers. Andhra Pradesh, Maharashtra, Odisha and Rajasthan did not accept any bids on their SDLs amounting to Rs 5,500 crore out of the total quantum of Rs 11,600 crore that was put up for auction. Bond dealers indicated these states did not want to accept the bids at such higher levels.
Ajay Manglunia, EVP, Edelweiss Financial Services said that the yield on the SDLs (10-year) usually hovers at a spread of 50 – 60 bps over the benchmark yield. “Considering that the benchmark yield is at 7.70%, a yield of 8.20% could be considered fine. However, certain states did not prefer such higher yields and decided to reject the bids. The only anomaly you could see is the yield on the 20-year paper of the state of Telangana which went for a measly 8.15%. This lower yield reflected demand from insurance houses,” he said. Telangana picked up Rs 2,000 crore via 20-year paper.
Benchmark yield has surged by about 20 bps since the last SDL auctions were conducted on April 17. This, in turn, has pushed the yields on SDLs higher. For example, Gujarat which picked up Rs 1,000 crore via 10-year paper at 7.95% a week back, had to shell out 30 bps more this time for the same tenor paper. Tamil Nadu, which paid only 8.05% for a 10-year paper last week, shelled out 8.24% this time. Last week, only one state had rejected the bids compared to four states this time.